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Monthly Financial Wrap-Up

10 Aug, 2004 By: Mike Dudek imageSource

Monthly Financial Wrap-Up

Each month we track changes in stock values of major public players in the
imaging industry. The following chart depicts most recent month-end prices
compared to September 30, 2003.

Danka and IKON continue to be the leading value-gainers this fiscal year.
Danka has grown 86 percent and IKON 57 percent. Lexmark jumped into the third
position at 53 percent, followed by Global at 49 percent and Xerox at 41
percent. If you had invested evenly across these stocks at September 30, 2003,
your money would have grown by 28 percent.


 Stock Price 

$ Change

% Change

Market CAP











$301 million







$1.74 billion

Global imaging






$790 million







$10.9 billion

Hewlett Packard






$61.4 billion







$45.8 billion







$15.3 billion







$12.1 billion







$1.35 billion

Electronics for







$1.43 billion







$10.6 billion















Latest Industry Developments

IKON – Announced the creation of three U.S. regions representing a consolidation
of their previous four regions.

Opinion: This move demonstrates IKON’s continued focus on internal
efficiencies. Previous consolidations within IKON have not always generated the
magnitude of expected efficiencies. In fact, previous reorganizations, from both
IKON and Danka, created revenue and market opportunities for independent dealers
while IKON focused internally. Let’s see why this move is any different.

IKON also announced the completion of the sale of its Canadian lease
portfolio to GE.

Adobe – reported second quarter revenue of $410 million, representing 28
percent growth year-to-year. Net income of $109 million was 70 percent above the
prior year.

Summary – Except for the IKON and Adobe news, there was little to report in
the industry last month, which is likely a “lull before the storm”.

The Acquisition Process

Due to the lack of industry news I thought this month I would offer a brief
outline of a typical buy-side acquisition-process in the office products
industry. The 11 step process includes:

1) Planning overall strategy

2) Establishing acquisition strategy and plan

3) Identifying and contacting prospects

4) Executing mutual non-disclosure agreement

5) Exchanging preliminary information

6) Performing pre-acquisition review

7) Executing letter-of-intent

8) Conducting detailed due diligence

9) Drafting and exchanging contracts

10) Closing transaction

11) Assimilating operation


1) Planning overall strategy – All companies should establish a periodic
overall strategic plan whether it is formal or informal, simple or complex. Any
acquisition strategy should represent only a sub-segment of most overall
strategic plans.

2) Establishing acquisition strategy and plan – An effective acquisition
strategy should contain as many essential elements as are necessary to properly
define and track objectives and criteria. The responsible management team should
be designated, along with their objectives, budget and return criteria. Among
other aspects, the plan should clearly define desired market locations, product
and service offerings.

3) Identifying and contacting prospects - One of the first steps in both
planning and executing the strategy is to identify prospects who may meet your
criteria. You should perform research about these prospects prior to contacting
them, unless you are already familiar with their operations and personnel.
Anyone who has conducted such preliminary conversations to solicit prospects
recognizes that this cycle could take anywhere from days to many years before
the next steps in the process.

4) Executing mutual non-disclosure agreement – Both parties should execute a
mutual non-disclosure agreement to protect confidentiality of discussions and
exchanged information. The most important attributes to be protected just happen
to be your most valuable assets, namely the customers and employees of the
respective entities, as well as any trade secrets and initiatives.

5) Exchanging preliminary information – The parties need to exchange certain
desired and relevant information about strategy, operations and historical and
projected performance. The acquirer generally desires more information as they
seek to understand the operating performance and qualitative attributes of the
prospect. However, the prospect must qualify the potential acquirer, including
compatibility and the likelihood that an acceptable transaction could be
financed and achieved.

6) Performing pre-acquisition review – This is the most important assessment
and analytical phase of the entire process. Both sides assess and analyze the
opportunity in as much detail as deemed necessary. The acquirer should analyze
and scrutinize the information obtained, and model the prospect’s financial
performance. This analysis generally leads to additional inquiries. Meanwhile,
the prospect should perform their own preliminary due diligence and assessment
of the potential acquirer while investigating the ramifications of a transaction
to themselves (owners), their company and stakeholders.

7) Executing letter-of-intent – If the preliminary discussions and
negotiations proceed along a “deal-making” path, and the parties are able to
arrive at price and other terms and conditions of a potential transaction, then
the large majority of transactions proceed to execution of a non-binding
letter-of-intent. (Some deals, generally larger transactions, proceed directly
to a definitive agreement; with provisions for adjustment of terms based upon
final due diligence.)

The LOI outlines expected timing and terms of the expected deal, generally
only consisting of a summary of key points and not nearly detailed as the
ultimate binding definitive agreement. Since the LOI is non-binding, it is very
important that both parties are committed and sufficiently trust each other as
there is a long road ahead prior to consummation; plus many issues that often
arise that require subsequent agreement. In addition, both parties start to
invest more time and money on the deal.

8) Conducting detailed due diligence – The acquirer should perform detailed
due diligence (on-site and off-site) to confirm their understanding of the
company as previously advertised. Due diligence can be extremely detailed and
“taxing” in nature, especially for the prospect. Due diligence should be
performed by objective experts and professionals who have the requisite industry
knowledge and are not emotionally tied to the transaction. Most due diligence
consists of sub-segments such as operational, financial, tax and legal.
Meanwhile, the prospect assesses their own future, and perhaps readies their
stakeholders for the potential transaction which may occur. In most
circumstances, employees have either been informed of the potential deal, or
they found out through the grapevine, which is not nearly as effective.

9) Drafting and exchanging contracts – While due diligence is proceeding,
generally the acquirer’s lawyer prepares the definitive agreement and other
contract drafts, which are provided to the prospect’s lawyer for their
“mark-up”. The lawyers and the due diligence team need to closely coordinate to
ensure necessary provisions and operational elements are reflected.

10) Closing transaction – After due diligence is completed and any relevant
related issues that are discovered are resolved, and after all parties are
satisfied with the contractual language, the transaction is ready to consummate.
Both sides should ensure that decision makers are at the closing in the event
that there are any important last minute details which require resolution.

11) Assimilating operation – Now the hard work begins, with attention to
assimilating the employees, their culture, operation and other stakeholders.
During due diligence, a prudent acquirer will have already planned key
assimilation steps with the prospect.

Summary - While an entire book can be written on an acquisition process, and
even on sub-segments of the process, we hope that the above summary provides
some insight.

- - -

Mike Dudek, the “Acquisition
Guy.com” is the President and Owner of Zygoquest Group and an authority on
mergers and acquisitions in the office products and other industries. Zygoquest
Group specializes in providing customized acquisition services to buyers and
sellers, advising entrepreneurial owners through the entire acquisition life
cycle or specific transaction aspects. Zygoquest assists entrepreneurs engaged
in selling their company or contemplating future disposition to position their
company to maximize exit value and minimize post-sale risk. Contact Dudek at
610.873.6555; e-mail: mdudek@zygoquest.com;
or visit www.zygoquest.com for deals
you’ll recognize.

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