The influx of private equity money is one of the hottest trends in the imaging industry and our virtual OEM panel share their perspectives.
Our Virtual Panel series continues this month in our print edition with comments from the Big Six OEMs, as well as HP and Xerox. The panel responds to questions, some submitted by our Dealer Advisory Board, about whether or not they plan to add dealers, diversification, aftermarket opportunities for future products, the biggest threat facing dealers, and advice on how dealers can remain relevant in 2024 and beyond.
Today, in our digital edition, executives from the leading OEMs share their thoughts about the private equity acquisitions sweeping our industry. Later this week they provide insights into their investments in A3 and A4.
Participants include: Shinichi Yoshida, executive vice president and general manager, Canon U.S.A., Inc.; David Laing, vice president and head of HP’s iMPS Services Business; Kevin Kern, senior vice president, Business Intelligence Services and Product Planning, Konica Minolta Business Solutions U.S.A., Inc.; Oscar Sanchez, president, Kyocera Document Solutions; Jim Coriddi, vice president, Dealer Division, Ricoh Americas Corporation Mike Marusic, president & CEO, Sharp Imaging and Information Company of America (SIICA); Bill Melo, chief marketing officer, Toshiba America Business Solutions (TABS); Jim Morrissey, vice president, Document Technology Partners, Xerox Corp.
What are your thoughts on dealers selling to venture capital companies and do you expect this trend to continue?
Coriddi: My first thought is that I see it as a real vote of confidence for our industry that equity companies, who have their choice of businesses to invest, view the dealer business model as being so attractive. Venture Capital (VC) companies are a very common player in mature industries with secure returns. How these arrangements evolve in the future remains to be seen, but so far many have been more of a partnering than a pure acquisition. The concept is that the larger owned entity can invest in growth, which could be spurred by expanding geographically as well as new offerings or capabilities, e.g. investing in production, IT services, cloud workflow, or just investing in new back-office technology to optimize their business. Production Print is an excellent example where a significant upfront investment is needed for dealers to begin offering this important capability, and external funding from a VC is one option to make this leap into Production Print a reality.
Will this trend continue? A lot will depend on the success of the current initiatives, and of course, the economy. At the same time, it’s important to note that we are confident in the accelerated growth and expansion of our Independent Dealer partners who continue to provide the best customer experience in their markets while also expanding their offerings to differentiate from the competition. We are extremely confident and reliant on our Ricoh Family Group (RFG) dealers, and we are currently preparing to jointly develop comprehensive business plans based on growth and expansion in the new fiscal year and beyond. Additionally, we have significantly increased dedication and access of Ricoh services and solutions resources to our dealers.
Kern: It probably will as long as the PE companies have an appetite. Some people will be selling depending on what makes the most sense for their personal situation. A lot of different things come into play here. [For some dealers,] it depends if the next generation is interested in running the business. Valuations are pretty high right now and the PE companies see this as a profitable, monthly-recurring revenue stream they’re buying rather than just a dealership. At a time when markets are uncertain and the stakes are not terribly high, it probably makes sense for them to do it.
Laing: As the cost of capital remains low and venture companies can buy at prices that enable targeted returns, HP expects venture firms to continue to drive return by creating efficiencies through consolidation.
Marusic: This is one of the more common questions I get. Venture Capital coming into our business is both a positive and a negative development . It shows the value they see as the services the dealers provide. It also provides a great investment tool to help the industry make the transition into new areas of the business. On the downside, that investment in a business that outside money can make will create a great “Haves” and “Have Nots” in the business and may expedite the sales of other dealers. It has also impacted valuations and made it more difficult for dealers who want to expand. When Venture Capital offers set a high bar for pricing multiples it often will make every dealer believe that is the value of their business, often times that is not the case. But any time an industry sees that much interest from others, should be construed as a compliment to the dealers already building the business.
Melo: Dealers owners have always had opportunities to sell their businesses to a variety of buyers including other dealers, OEMs and “acquisition companies” like IKON, Danka, Global, etc. The recent group of VC-backed companies have, to some degree, replaced OEMs as the most active acquirers. So far, these companies have largely allowed the acquired businesses to operate as before while solidifying their resource base. To the extent that behavior by the acquirers continues, it’s a good thing for the industry. Better-capitalized dealers usually result in better results for everyone. As long as the economy remains strong and access to capital is relatively easy and cheap, it’s likely that this VC-led acquisition spurt will continue.
Morrissey: I am excited and intrigued by the activity. I have discussed this topic with many in the industry and even though venture capital companies seem similar, they have different motives and potentially different exit strategies. I do believe that it will continue for about three to five years. That is the normal VC time frame for ROI. I believe that this activity has energized the dealers (given the constant solicitation) so that part is positive. We all know the industry is consolidating and this is a natural part of that consolidation.
Sanchez: As you know, I have only been in the U.S. for about 6 months, although I followed this market closely when I was in Europe. The U.S. dealer situation is very different though, primarily because the pace of M&A is not as aggressive in Europe at the moment. I would say that in the U.S., the current state of acquisitions and the speed at which they are occurring, is not shocking to me. None of us are blind to the reality of the future of our industry. The venture capital companies moving so aggressively into the market has changed the dynamic somewhat. In some cases, the smaller regional players have now turned into national forces overnight. That changes everything in a market. But it’s not necessarily the disruptive factor. The venture capital acquisitions of dealers will continue, but I believe the big disruption for our industry is yet to come. The disruption will come from a shift of the business model itself, which has already started. One example of this business model shift could be seeing contracts sold online in a very different structure than with which we are currently familiar and comfortable.
Yoshida: I believe we live and work in a capitalistic world where the goal, especially for business owners, is to make money and in the short term we will continue to see this trend. Smaller dealers, for instance, may be tempted to sell their business when proposed with high evaluations from the venture companies who have the money to invest. Further, with some of the family-owned dealers, their succession plan may either keep them strong, or not exist so this is an exit option to consider. With this new trend, it is important to acknowledge that while it may be unsettling for some, in the short-term, it is a way to bring cash flow into the business and fuel the industry. The long-term effects are unknown for now.
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