It has been some time since The Cannata Report has had an opportunity to chat with DEX Imaging’s CEO Dan Doyle Jr. With a little help from our friends, we were able to schedule an interview to discuss Gamut Capital Management’s acquisition of DEX Imaging from Staples, which was originally announced in April and closed in June. We discussed how this will impact the mega dealer’s future, including acquisitions, supplier relationships, his perspective on the mega dealer landscape, managed IT services, and more.
Is there a dramatic difference between what was going on under Staples and now with Gamut?
Doyle: Under Staples, we were just a small piece of a giant business. They left us alone for the most part, but there was never a push on their side to try to create synergies or figure out how to generate extra sales. I think the idea was there, but they had their issues after COVID because if you think about it, their biggest customers were in New York, Chicago, Boston, and Los Angeles. They were focused on getting their core business back, and we were not a problem child, so they just left us alone, which was great for us.
They were leveraged up [financially] and were getting calls. They had to restructure their financing and needed a way to pay some debt down to refinance. And unfortunately, or fortunately, depending on how you look at it, you take the machines that are operating well and can generate the most cash for you, and you [sell] them. And it worked out. At the same time, I was pushing them to do a roll-up in the industry. And I went and presented that to them. They returned and said, “We’re not in a mood to take [on more debt]. We have to pay some debt down. And maybe this is the way we figure out how to part ways.”
So far, so good?
Doyle: So far. Yeah, it’s been great.
Were you familiar with Gamut Capital Management before?
Doyle: I knew of them. We went through the whole process and talked to a lot of people. They like investing in traditional businesses—recurring revenue businesses—so if you think about our industry, we pretty much fit that mold. And the more they came and looked at us and watched us, the more they became excited about it. We hit it off well with them. I presented them with the plan I had presented to Staples, and they liked it.
What’s the plan now for future acquisitions at DEX Imaging?
Doyle: Right now, we’ve got folks on our burners in some way, shape or form, letters of intent, doing due diligence, all of that.
How do you view the mega dealer landscape?
Doyle: You’ve got the five of us, the big mega dealers. We all know each other. I think we all respect each other. You know what the other ones are up to. I think, eventually, some of us are going to come together.
We keep predicting that.
Doyle: Would you bet on that?
We always say it’s got to happen sooner or later, but that scenario seems to be pushing out further and further.
Doyle: Everybody’s trying to figure out where they fit in the puzzle.
Did you see the Novatech news today? (Editor’s note: Perpetual Capital Partners acquisition of Novatech that was announced on Sept. 4.)
Doyle: I think Novatech’s acquisition by a player who has not been in the business will bring new life and new energy to the industry. In my opinion, this brings credibility to the industry because you always have people who say print is going away. And then you have people like us, Flex, and POA. We’d say the opposite. We’re still seeing [print] revenue climb. We’re still selling machines.
Looking at the current independent dealer population, are there plenty of suitable acquisition targets left?
Doyle: Some great mid-size dealers realize they need to partner with a bigger dealer to survive and grow. I truly believe that. The small little mom-and-pop dealer, five million and under, they’ll always be around. They’ve existed in my dad’s lifetime. They’ll continue to exist. They are survivors. But that mid-size dealer has to either grow or join a bigger one because they have to be able to acquire and service the bigger customer along with the little customer. They have to do more and have the infrastructure to do more. That infrastructure right now is expensive. The cost of an employee is expensive.
Is it hard to convince mid-size dealers to sell despite what you just said?
Doyle: No, I think they see it. Then, it comes down to valuations and what we are willing to pay. What is Flex willing to pay? What is UBEO willing to pay, and what is that mid-size dealer willing to accept?
Are you looking to expand DEX Imaging’s national footprint beyond where it is now? You have a pretty large footprint to begin with.
Doyle: We are, it is to be the nationwide player. What we’ve seen is the manufacturers have shrunk their sizes. I think there is a need for a nationwide player. It helps your regional and national accounts, but it also makes you stronger for your local accounts because now you have X number of techs, so you’ve got a lot more knowledge base that other techs can feed off.
One of the quotes in the press release that came out in April about the DEX Imaging partnership with Gamut was to “Further strengthen your relationships with suppliers and enhance your service capabilities.” Can you explain that?
Doyle: Our family took an active position in the business. We bought back a large percentage of the business, and Gamut partnered with us in doing that, so we’re back focused like we used to be, not that it ever went away a hundred percent, but we’re driving this engine hard to make sure we live up to the standards that we set, and we expect. Now that being said, has it strengthened our relationship with the manufacturers? Yeah, because now the manufacturers know it’s back to the Doyles. Not, ‘Oh, the Doyles are a mouthpiece for Staples.’ When they meet with us, they know the buck stops here.
If we speak again next March or April, what might we discuss if everything goes according to plan?
Doyle: You and I will discuss where we are, where they are, and what we’re trying to do and what they’re trying to do. You’ll see IT services become more of a play.
And how big of a piece of DEX Imaging’s business is IT services? Historically, Dex has not focused on IT services.
Doyle: It was not, but we will focus on it now. Right now, it’s a very small percentage, a single-digit percentage, but we’re going to grow that. That’s where Gamut will help. They brought in the expertise of people who have run large managed IT service businesses, and we’ve hired them.
What lit a fire under you concerning IT services where it wasn’t such a priority before?
Doyle: We look at growth in our industry. A4 will probably outpace A3. That is a huge growth opportunity, and we need to get into that. We’ve put a lot of resources into production print where Staples wasn’t allowing us to make that spend. Gamut, my dad, and I want to grow it, so we’ll slow down profits to increase revenue and get into the other avenues. And IT services, Gamut noticed it and came to us and said, ‘We believe in it. This is what we’ve seen, and we can put the right people with you who can help you get from A to B.’ You trust your partners, and we’re going to go for it.
One more question. Are you and your dad still enjoying this?
Doyle: I love it. Dad loves it as well. He is in the office next to me. We meet for breakfast every morning and do a debrief. He’s like an encyclopedia of the industry. I can ask him questions, and he’ll tell me, ‘This is how we used to do it. This is how we should do it,’ or ‘I never had to deal with that before, so let’s figure it out.’
