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Deal of the Century: Xerox Turns to Global for SMB Growth

11 May, 2007 By: Sand Sinclair imageSource

Deal of the Century: Xerox Turns to Global for SMB Growth

The seemingly sudden plan to acquire Global Imaging
Systems Inc. by Xerox Corporation for about $1.5 billion, in a move aimed at
tapping into small and mid-size businesses, has stunned many in the document
imaging market. This has major consequences, full of pros (and a few cons?) for
many in the world of digital document imaging, as the playing field just got
permanently altered. So let’s see what’s intended.

This deal is Xerox's largest in decades, and according to
Xerox Chairman and CEO, Anne M. Mulcahy, "It’s a very significant acquisition."
She acknowledges further, "It clearly transforms our ability to grow our top

Global Imaging Systems, as many are aware, focuses on small
and mid-size businesses through 21 regional core companies in the United States
that primarily sell and service printers and copiers. Increasing sales of laser
printers and multifunction devices that print, scan, fax and copy are at about
15 percent annually in recent years, according to industry research. Xerox will
gain  about 200,000 customers from Global and increase its distribution to small
and midsize business customers by more than 50 percent. Xerox has been stepping
up its efforts to capture more of what it calls a $44 billion worldwide market
for small and mid-size businesses by introducing new office machines, expanding
its sales force and buying other companies.

Wanting to know more about the new partnership of these two
"global giants," senior executives Tom Johnson, CEO of Global, and Jim
Firestone, President of  Xerox North America, sat down with Marc Spring, founder
of ITEX and publisher of imageSource, to discuss the recent news  that rocked
the industry with their joint announcement in early April.

MARC SPRING:  Tom, if other manufacturers do honor
their existing agreements, do you expect to continue to sell their current line
of products?

Tom Johnson:  For the foreseeable future, yes.

MS: Global has allowed each individual business to
continue to run as a local business. Will it become Xerox branded across the
board or will they continue to promote local brand? Will that "think locally,
act globally" philosophy change?

Jim Firestone: The core value that Tom has created;
his local presence and local intimacy with the customer is something we at Xerox
want to preserve. Our intent is to leverage the core company brand as they are
today, and the tall message to those customers is that the nature of their
relationship will stay the same. It will just be new technology that they will
be able to offer in their mix. I think that local brand names are very important
in that message.

MS: Do you see Global’s local branches becoming a
"Xerox company" or will it remain more autonomous? It appeared Global kept a low
profile while their local branches profiled their company names.

TJ: Customers usually know that they (the local
branches) are part of Global, but we rarely play up the Global name. We have
always emphasized that all of our local advertising should be in the local
company name, and where we needed to, say a larger or middle market customer
where it would lend strength and stability, (usually for a national company)
we’ve used it sparingly. Still, some companies do indicate on their stationery
and business cards that it is a Global Imaging Systems company.

MS: What will the local management structural
changes be? What can we expect to see for Global? Will Xerox go with what’s
current, or will it be "stepped up" at all?

JF: I think that is something we’ll have to sort out
over time. The initial posture will be to minimize any unnecessary changes. Most
importantly is the local, core company name, so that the customer knows that we
are not changing who they are dealing with, or what their basic relationship is.
We’ve got teams working to be able to efficiently enable that as quickly as
possible once the transaction closes.

MS: When can we expect Global Imaging branches to
start selling Xerox brand products.

JF: We expect the transaction to close in May, and
obviously we have training of the sales force and training of the service
organization and supply chain logistics to work out, but I would say in the
second quarter that we will be able to have some product available, and it will
build over time.

MS: Tom, what copier manufacturers are covered in Global today?

TJ:  Konica Minolta, Sharp, Canon, Ricoh, Toshiba,

MS: If you sell other manufacturers’ products, are
there any particular manufacturers that you are looking to work
more closely with, and are there any you don’t see a relationship with in the

TJ:  For the foreseeable future we plan to continue
as we are. We have two product lines in every location; we don’t have all four
or five in any location – our four major vendors are Konica Minolta, Canon,
Ricoh and Sharp.

MS: Tom, are you planning on staying on for awhile?
You have put specific management in place to take on a lot of duties that you
were doing. What’s the strategy with that now?

TJ: We’re going to continue with that transition. I
have an agreement with Xerox to be here for quite some time.

JF: Our intent is to manage Global as a wholly owned
subsidiary. Tom will run it with his team, and he’ll report directly to me so
that we can make sure that he has all the necessary degrees of independence and
freedom from the rest of Xerox to maintain the model he has built so
successfully over the years.

MS: So going forward, Xerox is the new owner of
Global, and will be introducing their product through this mix. Other than that,
the business managing of Global will be run similarly, but with new ownership.

JF: That’s one way to look at it. Over time I expect
that what works best for some of the ways Global runs itself, we’ll consider
using, and there may be some things that Xerox does that Global will want to
take advantage of. But this is not an acquisition that is being driven by cost
synergies and integration but instead, is being driven by growth synergies and
opportunities, and this is what we want to be sure we pursue as our first

MS: What do you think Canon and Ricoh and the other
Japanese providers are going to feel about competing with Xerox?

TJ: We have been great partners with them for all
these years and are meeting with them individually to express our desire to
continue that, and we’ll just have to wait to see what their response is.

Global indicates it will retain its 4,500 workers at its
subsidiaries. Global’s high numbers speak volumes with why Xerox holds an
attraction to them, with Global’s revenue at $1 billion last year, up 11 percent
from the prior year, and profits of $62 million, up nine percent.  Johnson,
Michael Shea, the president and chief operating officer of Global, will continue
to lead the company, reporting directly to Firestone.

Industry First Impressions

Greg Schloemer, president of DocuWare, a software solutions
provider for integrated Document Management, with over 400 authorized partners
to make up a worldwide independent reseller network in over 50 countries, was
asked by imageSource for his initial reaction to the dynamic news.

Remarked Schloemer, "With another bidder in the market,
every independent dealer just saw the value of their business increase
overnight, and I am sure that independent dealers more than ever will appreciate
their brand options  after this  deal."

Michael Stramaglio, CEO of MWA    Intelligence, a worldwide
provider of  strategic systems & remote diagnostics to support the exchange of
real-time information between hardware assets, mobile workers, and
mission-critical office departments stated, "Xerox and Global have ‘stunned’  a
market that has been screaming out for monumental change for quite some time.
This move has sent an irrefutable message to the worldwide marketplace in that
Xerox intends to secure its leadership position, and with a vengeance!"

Analyst and consultant, Andy Slawetsky, of Industry
Analysts, Inc. also shared his views on the acquisition. "Xerox has voiced their
commitment to becoming a major vendor in the SMB market, at length, seen over
the last several years. The acquisition of Global Imaging by Xerox adds another
layer to Xerox’s ability to adequately cover the SMB market. Global Imaging is
arguably one of the best run and most profitable dealer conglomerate
organizations. It is our opinion that the sheer size of Global’s outbound sales
and service force and their extensive customer base make this acquisition one of
the best Xerox has made since Tektronix.”

Industry management consultant, Tom Callinan, managing
principal of Strategy Development and a former IKON executive, had a lot to say
on the impending partnership. "Xerox's acquisition of Global is a bold move that
provides them with a solid SMB sales organization to complement their highly
competent major account organization. Xerox's ability to maintain Global's
strong local culture will be critical to a successful integration, and
ultimately impacts the dealer channel. I do believe the acquisition has the
potential of eliciting a strong reaction from the Japanese OEMs."

Callinan continued with, "The Xerox acquisition reminds
everybody that public companies can be bought, so Canon, Ricoh, and Toshiba must
now at least contemplate IKON or Danka falling into the hands of a competitor.
Will Global’s current suppliers look to replace Global business? The
distribution channel for these manufacturers just shrunk by approximately $400
million wholesale. Manufacturers may accelerate dealer acquisitions or open more
direct operations to compensate. I believe the importance of a strong
independent dealer channel will become more apparent to the OEMs, and the dealer
community will see better relationships with the manufacturers."

No one sums up the acquisition better than Xerox Chairman
and CEO, Anne M. Mulcahy.

"Xerox already has the industry’s largest portfolio of
document systems and services and the broadest U.S. distribution network. With
Global’s localized expertise, experienced employees, and deep customer
relationships, we’ll increase our distribution to SMB customers by more than 50
percent at a time when our portfolio is at its strongest, earning an even
greater share of the (multi-billion dollar) SMB document market in the U.S."

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