It wasn't long
ago when you had the independent dealer channel, the OEM
direct channel, and the three mega dealers-Global, Danka, and
IKON. At one time, those three mega dealers seemed invincible,
sucking up independents, driving others out of business, and
forcing others to regroup, refashion their business plans, and
come back out swinging. Then things changed, at least with
Danka and IKON. The general consensus was that Global did it
wisely, acquiring dealers and letting them run the business
pretty much the way they always did in their markets. At the
risk of generalizing, after buying, the other two cleaned
house or let talent walk away, often exorcising the heart and
soul that made those dealerships strong in that market. That
strategy seemed to work for awhile before imploding and with
that implosion came declining stock prices, which helped make
these entities ripe for acquisition in an office equipment
climate where buying distribution and securing MIF was the new
business model.
When first announced, everyone and their brother weighed in at
the time on the relative merits and detriments of those
acquisitions, but now that some time has passed, we're curious
as to how the grand old analyst community rates those
acquisitions today. We've asked four of our favorite analysts
to weigh in with their thoughts. Here's what they have to say.
Brian Bissett, Publisher & Editor The MFP Report
If you ask
Brian Bissett what he thought of the Xerox acquisition of
Global when it happened, he would have said that acquisition
had the highest risk based on the lack of experience on
Xerox's part in the owner/operator, entrepreneurial
fast-paced, independent dealer-oriented business. Add to that
the fact that they were purchasing non-Xerox experience and a
non-Xerox installed base, there was no guarantee it was going
to work.
"Certainly three years out, it seems to have worked very
well," opines Bissett. "They've managed to hold onto the
Konica Minolta and Sharp business in a reasonable amount.
There doesn't seem to be any mass exodus of top management
talent, certainly in the core companies out in the field. They
seem to have followed through on their commitment of
maintaining the separateness and latitude that Global needed
to be successful.
They didn't go in and put the Xerox stamp on everything and
make them swallow Xerox's procedure manual. And where the 1 +
1 equals a little more than 2, it seems they have absorbed a
little understanding of what Global does and put that into the
Xerox side of things. Rather than turning them into another
piece of Xerox, they leveraged the strengths they had and even
learned a few lessons from them."
Bissett is
optimistic the current game plan will remain unchanged,
particularly in light of the ACS acquisition, which is another
acquisition story altogether.
"With ACS in the picture, Xerox certainly has bigger fish to
fry in terms of how they can integrate disparate units," says
Bissett. "It's not that Global doesn't matter. Because it's
been successful they have every reason to continue with the
way it's been going. If anything, some of the fundamental
lessons of how to acquire, transition and work with an
organization that was somewhat different from your own culture
was a good lesson to learn that they now applied to ACS, which
in order of magnitude is larger and more different."
As far as Konica Minolta's acquisition of Danka, he says, "It
seems to have gone pretty well."
Looking back, Bissett acknowledges it wasn't unreasonable to
question how this would work, mainly because Konica Minolta at
the time was still the industry poster child for channel
conflict.
"The risk at the time was that it would only exacerbate that
more," recalls Bissett. "The new management and approaches
they put in when Rick Taylor came on averted what could have
been a lot of stickiness and messiness."
What the acquisition has done, in Bissett's opinion, is
transform Konica Minolta into more of a direct organization
than any other vendor outside of Ricoh. Overall, he feels this
was a relatively smooth transition and he's pleasantly
surprised as to how well it's turned out.
"They seemed to have finessed it fairly well and it was a
simpler deal than Konica and Minolta merging," states Bissett.
"On the upside as in the Xerox case they were buying
non-Konica Minolta MIF."
On the Ricoh and IKON front, Bissett feels the jury is still
out. Some of that is because of the timing of the acquisition.
"The deal closed when the economy was on the skids," he says.
"When you look backward it's a little hard to separate what
was an integration issue from the complexity of the failing
economy. It seems that they're slowly getting their act
together."
One thing that's obvious to Bissett is that the acquisition
only exacerbated Ricoh's evolution away from independent
dealer distribution.
"The problem
is Ricoh hasn't been clear with themselves or the market
acknowledging the reality that they, for whatever reason, are
choosing to be foremost a direct company," he says. "Not that
that's a right or wrong thing but you can't tap dance around
that."
If Bissett has any criticisms regarding the acquisition, it's
directed at the company culture.
"There hasn't been a strong leadership personality who had
credibility within Ricoh and within the broader industry since
the days of Kirk Yoshida to speak to these issues," he notes.
"I'm not saying they're not trustworthy, but they're more
behind the scenes people and I haven't seen anybody step up
and put a management leadership imprint on things the way Rick
Taylor has at Konica Minolta or the way Kirk Yoshida had in an
earlier period at Ricoh."
He notes that this climate creates a lot of confusion among
large accounts, dealers and the rest of the industry.
"When you're doing somewhat risky and bold things you're much
more likely to be successful if somebody is coming out and
painting a picture and you follow through on that," he says.
Overall, Bissett feels that Ricoh hasn't made any major
missteps in making this transition and that it seems to be
gradually coming together.
"I think Ricoh approached it more like they approached a Savin
or Lanier kind of deal, mature market, flat and declining
hardware sales, but to buy and control more of its
distribution. While they got that, the sort of upside [perhaps
more strategically] to the value in IKON are the things
they're getting in terms of capabilities in MPS, solutions,
and traditional services."
He's not surprised that IKON personnel are now running the
show. "It's hardly the first time, since Ricoh has a history
of thinking the people in the companies they acquire are
smarter than the people they have inside," he notes. "Not that
they say that but sometimes actions speak louder than words."
Bob Sostilio, President of Sostilio & Associates
Bob Sostilio
has sat through a few acquisitions in his 42+ years in the
industry. As he points out, the formula that often works best
when acquiring a company is when the acquisition has a
positive cash flow.
"You'd have to see the numbers and because that information
isn't shared on a public basis, all we can do is look at it
from 90,000 feet," he concedes. "If you look at some of the
results of the acquisitions, certainly the Global acquisition
seems to be contributing to Xerox's profit and I believe Danka
is contributing to Konica Minolta. Danka gave them some
additional sites where they could install their high-speed
machines."
He gives big kudos to Xerox.
"Xerox says more than 50 percent of Global sales are now
Xerox. That has to be a pretty good track record in that their
objective was to penetrate that market. They now have a pretty
good base of their own machines and they're now converting
whatever machines aren't Xerox into Xerox machines. If that
was their strategy, which I assume it was, it's paying off
dividends."
As far as the Konica Minolta and Xerox acquisitions go,
Sostilio feels both companies have done a good job of
transitioning their acquisitions into their organizations.
"There hasn't been a mass exodus of employees, there wasn't
any bad paper on the street, and people weren't thrown out of
their jobs at Christmas."
Sostilio is less impressed by Ricoh's performance.
"Look at all the acquisitions Ricoh made in the past, they
were all positive cash flows. When they acquired Savin Corp.,
they left it as a separate company. When they acquired Lanier,
they left it as a separate company. With every acquisition
they made, it was like adding another wholly owned subsidiary,
but they didn't really combine them with existing corporations
or combine them with the synergies they could have early on.
With the IKON acquisition it's possible we don't know what all
the numbers are, but they probably didn't turn all those IKON
accounts into Ricoh accounts because they didn't have the
horsepower to do it."
Frank Cannata, President, Marketing Research Consultants
Frank Cannata
emphasizes different standards apply to different
transactions.
"You have to understand there are different objectives," he
says. "In the Xerox case they were looking to develop a
channel's approach that made sense to them and one where they
could have some kind of effective control. That's worked
extremely well. The expectation was this was never going to be
the dominant vehicle to deliver Xerox product, it was just
going to be a way to get into the channel with their products
in some sort of controlled fashion. On that basis it's worked
out pretty well for them."
He adds that it's been a pleasant surprise for a lot of people
in Xerox how well Global has performed.
"How long it stays that way, I don't have a clue," he says.
"If they maintain the culture that was established by Tom
Johnson, they can do it, but at some point in time the imprint
of Xerox is going to fall on that company and I think things
can radically change."
On the Ricoh front, Cannata says Ricoh wanted to protect the
Ricoh MIF within IKON.
"It's as simple as that," he says. "Of course everybody said
they overpaid, that's easy to say. I think the way Ricoh
looked at it is, it would have been prohibitive to replace
that MIF any other way. But I will say it's going to take them
a long time to reap the benefit from it."
The problem as Cannata sees it is when you have a big company
and it acquires another company, there's strong management in
place that can absorb what you've acquired and give it
direction and give it shape.
"This is my observation from outside, but it just looks like
Ricoh didn't have that kind of leadership in place that could
do that. Basically they turned the operation over to IKON, so
in this case it became the acquired taking over the acquirer,
at least in North America. I don't know how that's going to
work long term. Short term benefit is Ricoh got what they
wanted."
By most accounts the Danka acquisition seems to have gone
smoothly. Some credit Rick Taylor who had been through a
number of acquisitions while at the helm of Toshiba, but
Cannata points out the Danka acquisition was in the works
before Taylor arrived at Konica Minolta.
"Danka was a very weak company financially so I don't know
what they really got," says Cannata. "When you have a company
that is struggling and cash poor for so long, they can't make
the investments to keep the business growing and to provide
the best possible services to their clients. They may have the
product, but what do they have beyond that? Were they able to
maintain a core of highly capable professionals to run that
business? That I don't know. On that one, I'm on the fence."
Lou Slawetsky, Industry Analysts
Weighing in on
the Ricoh IKON acquisition, Lou Slawetsky reports that Ricoh
was not necessarily buying distribution points. They had
plenty of those through Ricoh Business Solutions (RBS).
Rather, they were buying competitive MIF. Although his numbers
may not be dead on, he estimates that about 30 percent of the
hardware moving through IKON was Ricoh while a good portion of
the remaining 70 percent was Canon, which explains the intent
to acquire competitive MIF.
"That only works if you can flip the MIF quickly enough and
from the reports we had early on it was not happening," says
Slawetsky. "The reason for that was the high connectivity rate
of the devices installed. You not only have to replace Canon
with Ricoh but you have to replace the network operating
system that's driving those devices from Canon to Ricoh.
That's a much harder sell and people were saying that if it's
not broken, I'm not going to fix it."
No doubt a conversion is taking place, but it's going to take
some time.
"My opinion was the conversion was not happening as quickly as
Ricoh intended it to be happening," says Slawetsky. "Is it
happening, yes it's happening; does it give them a bigger
footprint, yes, but mostly it gives them a large managed print
services business that they can leverage into their current
program."
On the Konica Minolta Danka front, Slawetsky offers some
anecdotal observations based on conversations with dealers.
"If you talked to their dealers at the time the acquisition
occurred about how they felt, they would feed back to us that
it was of very little consequence because the Danka locations
were not very strong. They had a weak competitor and now most
of that got absorbed into a local branch. Most dealers would
say they didn't see an impact from that acquisition. If you
asked Ricoh dealers, they'd all say yes, my major competitor
got bigger. That's a big difference in attitude."
He adds that if you look at the number of Konica Minolta
dealers, that number is equal to or greater than before the
Danka acquisition. If you look at the numbers of Ricoh
dealers, that number is declining. Or, at the very least,
dedicated Ricoh dealers are declining.
"I think it went better for Konica," says Slawetsky. "Part of
that is the way it was managed and part of that is because
Danka did not materially change the management structure of
the company. Whereas most of the senior American managers at
Ricoh became IKON people, management stayed the same at Konica
Minolta. It wasn't as strong a competitor as IKON was so I
think the Konica Minolta transition, although it didn't bring
as much to the table as IKON, went much smoother."
Scott Cullen
is a regular contributor to ENX and has been writing about the
office technology channel since 1986
Four
Analysts Rate The Big Three Acquisitions