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Ricoh Acquisition of mindSHIFT – Launch Pad for Services and Sign of Acquisitions to Come

29 Jan, 2014 By: David Ramos

Best Buy acquired mindShift in 2011 for $167 million. The strategy at the time was to use mindShift to break into cloud services and target more SMBs.  Best Buy was focused on developing a services business and the thought was that with the combination of mindSHIFT’s cloud, data center and professional services would allow the two companies capture a greater share of the $40 billion small and mid-sized business MSP market.

Paul Chisholm, chairman and CEO of mindSHIFT at the time in 2011 stated of the acquisition by Best Buy, “We are very closely aligned with Best Buy in both corporate vision, and in our culture of integrity, customer value and results.”

That was then, this is now, and the current reality for Best Buy is to leverage an asset (mindSHIFT) and go back to doing what made them great and focus on their core.  Bottom line, this is a good/needed move for Best Buy after a disappointing 2013 that was capped off by a holiday price war with Amazon where it lost badly.

As for Ricoh, they get one of the top SMB Managed Service Providers in the United States.  MindSHIFT, has client growth of 28% over the past two years (5,400 to 6,900 via organic growth and one acquisition in 2013), this strategic investment positions Ricoh to expand its IT services business as well as support their focus to growth as a provider of IT Services moving forward.  From a manufacturer of office equipment, printer and digital imaging company to IT Services is a serious move, Ricoh along with its 8,000 specialists has shown signs of this shift over the last half of 2013 with small scale investments in their IT Services business (their IT Services is estimated to be $20M in annual revenues in the US).  Through this acquisition, they also captured knowledge and market share to align with their vertical markets strategy with mindSHIFTS expertise in legal, healthcare, financial services, non-profits and education space.  MindSHIFT solidified this expertise even further last year when they acquired Texas-based White Glove Technologies, an MSP competitor with 105 employees, specializing in similar vertical markets. MindSHIFT has a broad variety of cloud services including cloud desktop, server, applications, VOIP and mobile device management.  These additional services along with Managed IT and Managed Print provide a strong portfolio of services for the targeted SMB market of both organizations.

From a document outsourcing perspective, the acquisition is indicative of an industry-wide push to expand the breadth of services within traditional outsourcing contracts. Documents that were once constrained to desktops are just as often found on tablets and smartphones these days, and the management and governance of that content by IT departments is paramount to an organization supporting a mobile workforce. As outsourcers attempt to integrate more effectively into existing enterprise processes, the ability to bring diverse IT services to the fold aids a more seamless conversion. One need only look as far as Xerox for evidence of an industry counterpart making similar forays in the outsourcing market—IT services as part of an end-to-end document management solution. The mindSHIFT acquisition augments Ricoh’s offering in this area, and will surely be leveraged in existing and future business.

Of note is that mindSHIFT will continue to operate under its current name, management team and capabilities, which currently include 650 employees at offices in Boston; Chicago; Long Island, N.Y.; Minneapolis; Morrisville, N.C.; New York City; Philadelphia; Washington, D.C.; and Austin, Houston, San Antonio, and Dallas, Texas.

This is a wise decision by Ricoh; the plan is to allow the channel to build trust with Ricoh’s arm’s length relationship to mindSHIFT thus allowing the channel to adopt the white label platform provided by them without fear of losing control of their client base to their OEM.  Of equal importance is that Ricoh has learned lessons from the Lanier and IKON Office Solutions acquisitions and integration’s of the past. Acquisitions are great because they generate press, buzz and excitement, but after the signing of the contracts, and the estimated fortunes made, lies a lot of hours, days, months, sometimes years spent dealing with the size of the acquisition, amount of integration required, cultural differences, and changes required of the acquirer (Ricoh).

All that being said, this is a big opportunity and a big play for Ricoh, to support their branches’ by learning, then implementing best practices from mindSHIFT that has made them recognized as providing “Exceptional Customer Support” by ILTA (International Legal Technology Association) Members every year since 2008 and voted one of the “Best IT Outsourcing Providers” by New York Law Journal readers.  And in parallel to supporting the direct branches, they will create a managed services program for their independent dealer channel to leverage as momentum builds for this next phase of the industry’s evolution.

Ricoh faces a big challenge as it relates to converting their independent dealer partners however; it’s not going to be easy.  The independent dealer is just that, independent thinking, independent acting, very, very, INDEPENDENT.  Upon hearing the announcement, early Ricoh dealer channel feedback has been mixed.

“This was a necessary move for them (Ricoh).  With Konica already doing the same (All Covered), and the interest in the dealer channel increasing in managed services, Ricoh needed to do something more than just trying to develop the program in house.  They have been trying to take the legacy IKON resources and develop a managed services program but it has gotten very little traction or interest.  Buying an established entity changes this for them.  They can better support their branches and I would expect the interest in the dealer channel would increase (i.e. dealer’s interest in Ricoh’s program).”

“The verdict’s out, it’s early, the deal doesn’t close until February.  I know they have been struggling getting their program off the ground; this relationship should hopefully help provide a Ricoh branded MS solution to the independent channel.  However, based on Ricoh’s track record they are probably going to focus on selling hardware to mindShift’s current client base. Unfortunately for them (Ricoh), and this is based of years of experience in dealing with Ricoh, they will get in the way of their own success.”

“My question is, does it make economic and strategic sense for Ricoh or is it just a case of keeping up with the Joneses? If it’s not a profitable venture, we the Ricoh dealer community will end up subsidizing it through our cost of goods just like we did the IKON acquisition.”

I don’t expect this to be Ricoh’s only acquisition of 2014; there are ample opportunities/targets in the MS IT space.  One easy point of speculation would be that of Staples managed services business, as Staples struggles with revenues and shareholder value, would Ricoh be interested in pursuing acquisition of a company like thrive networks (A Staples Company)?  Regardless of this speculation, Ricoh is a company that is focused on changing and they have demonstrated that repeatedly throughout 2013 through increased investment on infrastructure, marketing, and sales (both direct and channel).

David Ramos is the Director of Channel Strategy Service for InfoTrends.  David is responsible for managing custom consulting projects, providing forecast analysis, developing market sizing estimates, and marketing channel strategy services to independent companies in the office equipment and IT services space. He can be reached via email at david.ramos@infotrends.com or by phone at 781-616-2151.

About the Author: David Ramos

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