Flex Technology Group, Marco Technologies, UBEO Business Services, and Visual Edge Technology discuss their acquisition strategies.
Everybody wants to rule the world. Or at least rule the independent dealer channel.
Sure, there are smaller dealers perfectly happy with their current status, those who have no designs to grow or go anywhere. But with the influx of private-equity money into the channel, there’s a major disruption going on. Big dealers are becoming increasingly bigger, fueled by private equity money, and small and mid-size dealers with no succession plans in place are being made offers that are increasingly difficult to refuse.
There’s a school of thought that all this private equity money entering the channel is a good thing because it validates this is a healthy and still growing business. Forget declining clicks for a moment, or rather, let’s forget about that entirely, because private equity isn’t entering the print or MFP business. They’re getting into a business that encompasses everything that touches an office or enterprise today and will likely be touching it tomorrow as new technologies, solutions, and services emerge.
Accepting that this is the new reality in the imaging channel, let’s examine what’s driving some of the leading dealers making acquisitions and review their business models and visions for the future of their organizations.
Flex Technology Group
Prior to partnering with Oval Partners in 2015, FlexPrint LLC was focused on organic growth. With his sights set on growing through acquisitions, FlexPrint CEO Frank Gaspari realized he needed a strong financial partner to help him grow what was a $50 million dealership at the time.
“I partnered with Oval to provide the financing and acquisition resources powering this initiative,” recalled Gaspari.
Oval, a private equity firm founded in 2015 by principals that completed over 100 transactions, saw great promise in FlexPrint.
“The principals at Oval had a solid reputation for structuring deals, having the correct balance of equity and debt in the financing, and all of the other critical components that go into a successful build up,” said Gaspari. “They knew I had a great reputation for building multiple businesses. I believe you’re only as good as your last hit and my goal is to make the Flex Technology Group (FTG) one of the most respected companies in the industry. To date, we’ve hit a grand slam for Oval and all the entrepreneurs who have become part of the FTG initiative. At one of our last leadership meetings the Oval partners commented that out of all the investments that they’ve made, this has been the fastest growing in the first three years.”
Since January 2016, Flex Technology Group (the name of the family of acquired companies), has made a dozen acquisitions and has grown from $50 million to $280 million in 36 months. By the end of this year, Gaspari predicts Flex Technology Group revenues will be more than $325 million.
The company’s acquisitions strategy is focused on quality, not quantity.
“We are interested in the right type of targets and the right market,” said Gaspari.
Some of those quality targets in the right markets include Caltronics, Shamrock Office Solutions, Flo-Tech, Marimon Business Systems, and ProCopy.
First and foremost, FlexPrint wants dealerships with a good reputation.
“I’m not interested in talking to anybody who doesn’t have a good reputation,” said Gaspari. “If they have a solid reputation, and they’re growing, that’s a great start.”
He also looks for entrepreneurs like himself who are open to learning and improving their businesses.
“I’ve been a serial entrepreneur in this space for 30 years, and I don’t care what I did in the past, if there’s a better way to do something, I will change, I simply want to improve,” said Gaspari.
Culture is another important criterion.
“At the end of the day, are they employee-focused?” asked Gaspari. “If they’re employee-focused, they’re going to be customer-focused.”
Flex Technology Group has an extensive national MPS footprint, which is a huge asset to the companies it acquires.
“There is low-hanging fruit with many of our companies’ enterprise national customers where traditional copier companies have overlooked the printers; we find that those printers produce three times as many prints as copiers,” said Gaspari.
What makes the Flex Technology Group acquisitions model different from other dealer acquisition models is that the owners of the dealerships who’ve been acquired can reinvest in Flex Technology Group. They can take pre-tax dollars and reinvest anywhere from 10% to 40% in the larger enterprise. In many instances, the reinvestment can be worth as much or more than the original value of the seller’s company.
“They’re actually partners in the same platform company, owning the same stock as me and Oval,” explained Gaspari.
The Flex model isn’t for everybody. In some cases, the owner may just want to leave. If that’s the case, and it’s a smaller company, FlexPrint will tuck it into one of its core companies in that market.
With private equity companies competing with independent dealers, as well as manufacturers, to acquire, it’s become a competitive acquisitions landscape. That doesn’t bother Gaspari.
“I don’t care how many people are trying to acquire the same company,” said Gaspari. “At the end of the day, you’ve got to connect with the other person, and they’ve got to connect with you. It’s not all about dollars and cents. They’ve got to believe they’ll be able to thrive and grow in this type of initiative. You can have one competitor or ten, it doesn’t matter. You’ve got to connect.”
Of the 12 deals Flex Technology Group has closed to date, Gaspari estimated that maybe two owners were looking to sell. The others agreed to sell after listening to Flex Technology Group’s value proposition.
“In all these cases, we connected with the business owners,” said Gaspari. “We connected on values, the future, company culture, and our reputations.”
At this point, he sees no reason for rebranding the acquired companies under the FlexPrint or Flex Technology Group name.
“I can’t see 20 years in the future, but at the end of the day, customers like to do business with people that know their market, the local people,” said Gaspari.
He cites a small company it acquired in Texarkana.
“Office Equipment of Texarkana and South Arkansas doesn’t mean anything to somebody in Chicago,” said Gaspari. “But in Texarkana, there’s 100,000 people and the company is a well-known entity. There’s no reason for us to change the name of that company. That was a small company that now has the strength, firepower, and resources of almost a $300 million-dollar company. But they still have the same good people that know the market. I don’t know what the value would be to change that.”
Despite the competitive landscape, Gaspari believes there are still plenty of opportunities.
“There are always going to be entrepreneurs that are going to want to take chips off the table,” said Gaspari. “And there are going to be entrepreneurs that believe in the future as I do and want to stay and reinvest. There’s a ton of runway.”
There are still markets where Flex Technology Group doesn’t have a presence, but there’s no rush to enter those markets.
“It’s not a race to say we have to get in any specific market,” said Gaspari. “We’re going to continue to be ultra-aggressive but patient, identify the right people, and execute when it’s sensible.”
Until then, the company is going to grow organically, significantly invest in developing its people and improving its core business.”
“There’s no question we’re going to double the size of Flex Technology Group in the next 24 months, zero, Z-E-R- O,” emphasized Gaspari.
Marco Technologies
In 2015, Norwest Equity Partners (NEP) acquired Marco Technologies. Since then, Marco has acquired 18 companies, adding to the 26 acquired prior to NEP entering the picture.
Marco’s first acquisition was in 2005 when it purchased a $1.2 million dealership in upstate Minnesota. Today, that market will be responsible for $60 to $70 million of Marco’s revenues.
“It was the catalyst,” said Marco Technologies CEO Jeff Gau. “I’m glad it went well because we wouldn’t have done anymore after that if it didn’t.”
One reason NEP acquired Marco was due to its past successes buying and integrating companies, which Gau explained is a hard thing to do.
“A lot of people talk about acquisitions and it sounds cool to do, but buying is the easy part,” said Gau. “Integrating it and [achieving synergy] doesn’t mean letting go of a whole bunch of people, it means synergy in processes, systems, and brand. Doing that is very difficult. The execution is hard, and I’m glad it’s hard because if it was easy, we’d all be doing it.”
Marco Technologies’ acquisition strategy is straightforward. Generally, after it buys a traditional copier dealership, it brings its IT services to those companies. That’s a differentiator, and one that can’t be minimized as Marco’s IT practice is approaching $200 million in revenues. Gau describes Marco as an IT company that also happens to be in the copier business.
“We like buying copier companies because there’s so much to leverage,” he said. “You’ve got your account base, and all the things we love about the copy industry, which makes sense for bringing other products and services to that IT decision-maker who now has the responsibility for copiers too.”
Whenever possible, Marco Technologies prefers to keep existing ownership and management in place after the acquisition. If an owner wants to cash out or doesn’t have the skill set to thrive in this new environment, Gau has found that sometimes the “No. 2s,” whether they are sales or service leaders, are “pretty darn good.”
If those situations don’t emerge, Marco Technologies looks at the geography. It has 62 locations across the Midwest and into Missouri, and now on the East Coast after its acquisition of Phillips earlier this year. If Marco has a physical presence in that region, it will integrate that dealership into one of its existing organizations.
The size of the dealership is always a consideration, and $2 to $20 million dealerships is what Marco Technologies typically focuses on. It has acquired larger dealerships too, and that could happen again.
“We are well-financed and equipped to buy anybody,” observed Gau.
On the other hand, Gau won’t enter a new market, particularly a larger market, and buy a small $3 million dealership, for example, and not have a No. 2 in place.
“If there’s a $10 million dealership with good leadership in Denver, Colorado, let’s say, where there was a No. 1 owner or a No. 2, I’d be interested, or a $20 million or $50 million [dealer]. If it was a $3 million dealership in Colorado, I wouldn’t be interested.”
Gau believes there are still plenty of traditional copier companies with owners who have a decision to make about the future of their dealerships. That’s changed the acquisitions dynamic as more acquisition suitors court those companies.
“My competitors used to be local dealers, but now my competitors are acquisition companies,” said Gau.
He has another take on the competition too and that’s the dealer mindset.
“Continuing a lifestyle business is what we lose to more than a competitor,” stated Gau. “You do the math. As an owner, if I have my thumb on it and I run this thing really, really tight and I can pull 15 or 20 points out of there and I can have a lifestyle, I can keep it and get my “˜X’ amount out every year so why would I sell?”
He expects that will change as print volumes continue their downward spiral.
“We’re seeing that price and the service is going to be prominent with unlimited print,” said Gau. “You’re going to see bundles. That’s going to scare traditional dealers because in that bundle is going to be voice, managed IT services, managed print, all of which is just a part of that copier [contract]. If you can’t add as much to the bundle effectively as the competition, then you put yourself in a different position where you’re playing defense instead of offense. That is the lifestyle services shift.”
Marco Technologies, with all its offerings, is a prime example of a dealer that’s always looking to add more to the mix. For example, it now has a shredding company, which enables them to bundle shredding services into its contracts.
“The people in the shredding industry think we’re giving it away for free,” said Gau. “Well, clearly, we’re not. Now that voice is delivered as a service rather than as a physical time and space phone system, you can do it per-user. Per-user is going to rule. Whether it’s by Apple, Microsoft, Cisco, the world is getting sensitized to per-user. It’s not even going to be by device; it’s going to be by user. If you’re not equipped to play that game and if it changes quickly, then your lifestyle business is going to end badly.”
UBEO Business Services
Jim Sheffield, CEO of UBEO Business Services, has worked in various capacities in the copier channel since 1984 before launching several companies, formerly known as DOCUmation of Austin, Documation of East Texas and Documation of North Texas beginning in 2004. Today, UBEO Business Services, based in Austin, Texas, is a $200 million-plus upwardly mobile organization, growing rapidly through acquisition and organic growth. Last year, UBEO partnered with Sentinel Capital Partners, a private-equity firm, which is providing the company with the financial resources to grow.
Sentinel has pretty much given Sheffield and his UBEO team carte blanche to run the company. When Sheffield started UBEO, the mission was to build the premier brand in Texas from a customer-relation standpoint. It is now taking that philosophy, with the assistance of Sentinel, and its mission to become the premier brand in the office imaging industry. Since being acquired by Sentinel in April 2018, UBEO has made six acquisitions, tripling in size.
UBEO is selective about the companies it acquires.
“When you’re trying to build the premier brand in the industry, you better be picky because we want companies that have our core values,” said Sheffield. “Our values are how we treat the customer, and if you’re not the premier provider in your market, or you don’t have a high aspiration to be that, we’re probably not interested.”
It’s the overall customer experience UBEO is looking at when determining if a company is a good fit for acquisition. By that, he means a commitment to the customer with a focus on excellence, quality, and value.
“We make all our decisions based on three criteria: one, what’s best for the customer; two, what’s best for our employees; and three, what’s best for the company,” explained Sheffield. “If you focus on one and two, three takes care of itself.”
When UBEO acquires, it prefers to keep the company’s current management in place because they tend to know the customers and their market. There are exceptions and occasionally UBEO acquires a company where the owner would prefer to exit the business after the sale.
UBEO has operations in two regions, Texas and California. It acquired Ray Morgan Company (RMC) in Chico, California, last year, which has given the company a huge presence in Northern California. UBEO has no plans to restrict itself to Texas and California.
“We want to be in all the best markets in the country,” said Sheffield. “We have aspirations to be in the East and are working toward that. Hopefully, we can find stronger dealers that can be our core in the particular areas where we want to be.”
Although he does, he said, “We’re not trying to be the biggest.”
Asked why a dealer would sell to UBEO as opposed to one of the other acquirers, Sheffield replied, “We’re very straightforward on what we’re looking for and who we are. We have a lot of credibility.”
Sheffield isn’t shy about discussing what’s next.
“We’re building a brand, the UBEO brand, that is going to be here, essentially for whatever forever means in our industry,” said Sheffield.
That was one reason UBEO sought private equity funding.
“For us, Sentinel was very upfront with where they wanted to take us,” said Sheffield. “They’re going to take us to a revenue number that they are comfortable with. It’s going to take several years. Then, we will move to another organization that will provide us with capital to continue our venture. The Sentinel people are comfortable with that and we’re comfortable with that, and we’re upfront about that with everyone we talk to and with our employees. This is a long-term play for sure.”
By next year, Sheffield expects UBEO revenues to exceed $300 million.
Visual Edge Technology
Over the past three years, Visual Edge Technology has made, by our estimate, at least 19 acquisitions. Up until the first half of 2019, the company had been one of the most active acquirers in the imaging industry. Although the acquisitions have slowed down since last November 16, when it announced its acquisition of Zeno Imaging, we understand the company has a few deals pending that will likely be announced sometime this year.
The company made its first acquisition in 2004. After the economic crisis of 2009, it went into a holding pattern, and then resumed its acquisitions initiatives in 2013. From 2014 through the end of last year, it has grown from $19 million to well over $200 million. Most of the companies Visual Edge has acquired to date are smaller dealerships with revenues in the $5 million and under range with Zeno Imaging, a $30 million-plus dealership, the most recent notable exception.
Leading the acquisitions charge for Visual Edge are two long-time industry stalwarts, Michael Brigner and David Ramos. Brigner’s tenure in the industry can be traced back to 1974 and over the course of his career, he has worked for some of the most prominent players in the industry, including Xerox, Savin, IKON, and Sharp before joining Visual Edge in 2006. Ramos joined Visual Edge in 2017, having worked previously with Xerox, IKON, Strategy Development, and InfoTrends.
Unlike the private equity-backed players in the space, Visual Edge is not owned by a private equity group. Brigner and Ramos described it in a 2018 interview with The Cannata Report as a holding company owned by management, the board, and its subsidiaries.
Visual Edge’s acquisition model mirrors that of the old Alco Standard. When Visual Edge acquires a dealership, it expects the owner of that company to remain with Visual Edge for an agreed-upon period of time””usually four years””and continue to grow the company. The name of the dealership doesn’t change, most employees remain, and the product lines remain the same. Some dealers even remain beyond that original four-year commitment. The company folds in as a part of the Visual Edge family and follows the Visual Edge strategy.
Ramos emphasized in that original interview that when dealers join the Visual Edge strategy there is zero disruption to that company once it becomes a wholly-owned subsidiary of Visual Edge.
The best prospects are dealerships that are performing to industry standards and benchmarks and are healthy from a profitability and customer retention standpoint.
“We don’t buy companies that are distressed, some buyers do, but that’s not a good fit for us,” Ramos told us in 2018.
Brigner often relies on referrals for identifying prospects while Ramos leverages his personal relationships with dealers.
Geography makes a difference and Visual Edge has its sights firmly set on specific markets from a print and managed IT perspective. Those locations tend to offer the best opportunities for organic growth. However, as long as it’s a well-run business, Visual Edge keeps an open mind.
“We expect them to maintain a certain level of performance,” said Ramos about Visual Edge’s expectations during our 2018 interview. “We do a thorough job of due diligence from predictive [revenue] standpoint. We set those expectations along with them.”
The other point that both Brigner and Ramos stressed in our original interview is that Visual Edge is not just an office solutions company, but an office technology company with a Managed Service Providers corporate strategy. The point, it is investing from a managed growth initiative into Managed IT Services.
Business as Usual
We could have easily included a host of other dealerships that are growing through acquisitions in this article if we had unlimited space. Consider Centric Business Systems, DEX Imaging, Loffler Companies, Novatech, and RJ Young. Each has expanded its respective footprint significantly in the past decade and will likely continue to keep buying. Whether you’re a buyer, seller, or are standing pat, acquisitions will remain business as usual and continue to change the shape of the channel with the companies in this article leading the charge.
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