Independent dealers react to the many acquisitions taking place across the imaging industry.
Each year we ask a different group of dealers to weigh in on a host of topics relevant to dealers. The intent is to provide different and diverse perspectives from across the country and from dealerships of different sizes.
In our print edition, our panel responded to a wide range of questions, including their biggest challenges, diversification, and the viability of production and industrial print. Here, in our digital edition they offer their views on acquisitions. Depending on the panelist, and whether or not they are an acquirer, thinking about making acquisitions, or have been acquired, we asked them a different question regarding acquisitions.
The panel includes Chelsey Bode, president of Pearson-Kelly Technology (PKT) in Springfield, Missouri and the youngest woman leading a dealership in the country; Tom Callinan, president of FlexPrint LLC in Phoenix, Arizona, one of the largest dealerships in the country; Robert Ferland, CEO of Axion Business Technologies in Cranston, Rhode Island, whose dealership was acquired by Visual Edge Technologies in 2016; Darren Metz, president of Novatech, Inc. in Nashville, Tenn., another large dealer with a strong IT services offering; Richard Van Dyke, president of Advanced Office, a dealership with offices across Southern, California; and Preston Woolfolk, co-president of DOCUmation in San Antonio, Texas, who along with his brother Hunter, are two more of the youngest dealers in the industry.
What’s your take on the dealer acquisitions that are occurring at a fast and furious pace? Also are you looking to make any acquisitions and if you are, what type of dealerships would be a good fit?
Bode: I’ve been in the industry for 12 years; although somewhat privy to it growing up, so dealer acquisition has really been my normal. However, acquisition certainly has taken a more aggressive tone here lately. My take on this approach really depends on the dealer and the marketplace. I think if you can take advantage of acquisition opportunities you can potentially win big if you find the right one(s). I believe the opposite can occur as well. The right opportunity for acquisition to me is a company with ownership that does not want to change with the technology evolution because they are nearing retirement. Outside of that dynamic, the company culture has to blend with ours and their customers have to be similar buyers to our customer. Then there are the analytics that tell the rest of the story. I think if companies are acquiring solely based on analytics it’s an unwise decision. If companies are acquiring to please shareholders for stated growth it’s an unsustainable decision. Ultimately, we are always looking for opportunities that make sense for Pearson-Kelly Technology that will provide sustainable growth.
Acquisitions are transforming the industry and your dealership is one of the more acquisitive dealerships, are you concerned that with all this acquisitions activity the number of viable acquisitions candidates is getting and smaller?
Callinan: Simple math dictates that the universe of dealers is getting smaller, yet we feel we have tremendous opportunity to continue to grow our platform. We follow a core company with a tuck-in model and we still have a lot of markets in the U.S. where we need to build out our core partners. Many of those core companies were acquirers of smaller companies before they became part of the Flex Technology Group. For instance, Caltronics in California did eight acquisitions before we acquired them.
There are a lot of companies out there acquiring but we have a model that is far different from anyone else in the space. Almost every acquirer integrates your company into their name, their back office and their culture on day one. The seller gets a check and the employees get severed. That’s not our model. We know that employees are proud of the company they work for, so we maintain the company name. There is no way we can know Sarah or Jimmy in Cleveland, Ohio so we allow local management to make decisions on how to care for their employees. Mary, from the third largest customer, has dealt with Bill from core company for 15 years and we don’t want to break that relationship. Moreover, we allow stockholders to reinvest a portion of their funds in the stock of the parent company. There is no requirement to do that, yet 100% of the former owners of the companies we’ve acquired have reinvested, hence why they are partners.
Metz: The pond is getting smaller and the big fish are getting bigger. Novatech has successfully completed 13 acquisitions and intends to complete at least one per quarter for the foreseeable future. There are approximately 5,000 managed IT and managed print service companies that fit our acquisition profile. About 200 of them have been acquired, so there are 4,800 left. It’s still a target rich environment.
Van Dyke: I’m really not worried about the acquisition candidate pool getting smaller and smaller. If anything, that makes those of us still standing more valuable. Many of the less than $2M-$5M acquisitions are still available and they are typically not a target of the larger private equity groups, nor do they typically command the higher multiples since many are not profitable or are nominally profitable.
Woolfolk: Absolutely. Mass consolidation in our industry has been a trend over the last 30 years. From our perspective, staying a local, family-owned business allows us to do the right things when it comes to our customers. We have looked at several recent acquisitions, but if they do not match our culture or values, we really stop there.
As a dealership that’s been acquired, what advice do you have for other dealers that might find themselves in your position, particularly when it comes to the initial discussion?
Ferland: It does not cost anything to listen and understand what might be available for a company in terms of an exit strategy, now or in the future, whether with a Visual Edge or another [organization].
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