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KONICA MINOLTA TO ACQUIRE DANKA OFFICE IMAGING COMPANY

By Andy Slawetsky

Konica Minolta announced their intention to buy Danka, the struggling independent supplier of office equipment. Over the years Danka has had financial difficulties and have unlisted themselves from the NASDAQ stock exchange in December 2007.  Even with these issues, Danka still retains a large customer base, serving 45,000 customers in the United States.

Under the terms of the agree-ment, the total purchase price will be approximately $240 million (U.S.).  Danka’s last full fiscal put their annual revenue at $450 million.  While this may sound like a very large organization, keep in mind that Danka pur-chased the Kodak copier sales force for almost $700 million in 1996.  This acquisition brings to mind another major industry move from 2007, when Xerox purchased Global Imaging and their customer base of 200,000 for a whopping $1.03 billion. 

This equates to $7,500 per customer.  While some analysts accused Xerox of overpaying for Global, today most acknowledge that it was a great move.  If that was a fair price move at $7,500 per customer, then $5,333 per customer looks like a steal, at least until you dig a little further.

This may be oversimplifying a bit, as there are additional con-siderations.  For example, according to fiscal reports from February 2008 reporting on their first three quarters, Danka had a considerable amount of debt, which no doubt contributed to a Konica Minolta purchase price that was almost half of the company’s annual revenue. 

The purchase also affects several of Konica Minolta’s competitors as Danka primarily markets Toshiba and Canon office equipment, among others.  Danka also sells Hewlett-Packard (HP) products and was potentially one of HP’s largest distributors of their Edgeline devices. 

While in many respects this purchase can be viewed as a defensive move against competitors, it appears to be more of an offensive play by Konica Minolta, as they are snapping up a massive chunk of customers that are currently buying competitive products.  Essentially, Toshiba and Canon are about to potentially lose 45,000 customers between them as the majority of them would be expected to eventually convert to Konica Minolta products – a net gain for Konica Minolta.  While Xerox’s acquisition of Global affected Canon, the impending loss of Danka may hurt even more coming just over a year later.  Two out of three of Canon’s biggest reseller networks have gone away nearly overnight.

At the very least, this is an extremely disruptive move that further consolidates a continually shrinking list of office equipment vendors.  The real question now is, who will buy IKON Office Solutions?

Over the years, a lot of com-parisons have been drawn between IKON and Danka.  In the early 1990s, IKON (Alco Standard at the time) and Danka were raiding the “market” of independent office equipment dealers, essentially going city-to-city to acquire large, successful, independent dealers.  At one point, IKON had over 800 locations.  IKON experienced similar problems as Danka, although they have rebounded better from some difficult times in the late 1990s. 

 IKON primarily markets Canon and Ricoh brands but also sells select products from Kyocera Mita and Konica Minolta.  While the Global Imaging and Danka losses have hurt both Ricoh and Canon, both pale in comparison to what these two vendors have at stake with IKON.

So here is the question; who will buy IKON?  It would seem that both Ricoh and Canon are the two most logical choices.  Both could use the coverage and the opportunity to pick up 25,000 employees and 400 locations across the U.S. and Europe.  Europe?  What would Canon USA and Ricoh Americas do with a European distributor? They could sell it off to their peer subsidiaries, helping to spread the cost around.

The other big issue is cost.  Global Imaging’s revenue was  $1.03 billion in the year before Xerox bought them.  IKON posted 2007 revenue of $4.2 billion – roughly four times the size of Global Imaging.  Ricoh has shown they are willing to spend money, acquiring
buLanier in 2000, Hitachi Printing Systems in 2004 (and previously Gestetner, Savin, Monroe, etc.).  However, those acquisitions were a fraction of the size that IKON would be with respect to cost. 

One other brand that theoretically has much deeper pockets than Ricoh Americas and Canon USA is Hewlett-Packard, who may have just lost a major Edgeline distributor with Konica Minolta’s impending purchase.  While Danka may not have been as active selling these devices as HP had hoped, their ability to support them coast-to-coast gave HP coveted service coverage and the ability to place Edgeline devices virtually anywhere in the U.S. 

Picking up IKON would give HP more coverage in the higher end office imaging space, particularly with Enterprise and Production customers.  IKON’s Managed Print Services revenue was $206 million – up $14 million from the year before.  Think how successful IKON Managed Services could be with HP’s products and programs.

HP’s greatest limitation in the past was their lack of a portfolio that could fully support customer-imaging requirements.  They had very few products that printed on A3 size paper.  Now they do.  HP offers a massive portfolio, including scanners, wide format printers, servers, color production products and everything in between.  No other vendor offers the ability to support a customer in so many ways.

HP’s biggest problem with Edgeline is that people aren’t used to buying this type of device from HP, therefore they are often not considered. Having 400 locations selling these products would certainly boost customer awareness and, consequently, sales. 

The trend is clear.  Toshiba, Sharp and others have been acquiring independent dealers in an attempt to develop a centralized sales force.  Canon, Ricoh and nearly all other traditional copier manufacturers have some kind of branch operation to speak of.  Except for IKON, the independent conglomerates are all but gone.  Ricoh bought Lanier, Océ bought Imagistics, Xerox bought Global Imaging and now Konica Minolta will have bought Danka.  HP, Canon and Ricoh all need IKON.  There are only two questions – who wants them more and who has the most money?

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