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ISM Article

The Art of the Deal

12 Jan, 2007 By: Sand Sinclair imageSource

The Art of the Deal

VisualEdge, corporate parent to a family of imaging solutions companies,
specializes in providing office and wide format equipment, consumables and
technical professional services throughout the USA. Headquartered in North
Canton, Ohio, VET was formed in California in 1986 as a wide format solutions
developer and grew over the next dozen years to become a nationally recognized,
value-added reseller of wide format imaging systems. In 1999, the company
acquired the K & E brand sales and service division of Azon,  a wide format
equipment manufacturer. For the next five years, the focus was on wide format
imaging systems of sales and service until the company repositioned itself to
become an acquirer of office solutions companies. In 2004,  VET aligned with its
equity capital partners, acquiring Graphic Enterprises of Ohio which created the
core platform for expansion through internal growth and additional acquisitions.

The company has now become a successful acquirer of office imaging technology
solutions companies, and seeks to acquire well-managed office solutions imaging
companies that are leaders in their local markets across the United States. In
wanting to learn more about VET’s quest for industry mergers and plans for
expansion, imageSource spoke with VET president and CEO, Mark Lewis, who related
his team’s vision for growth-enhancing profitability.

imageSource: What is the projection or five-year Growth Plan for
VisualEdge? Are you currently in acquisition talks that you can share with our

Mark Lewis: Our Board of Directors has reviewed a five-year strategic
plan that currently details our growth map in acquiring over 20 additional
companies, but that is based in part, on timing and size of each acquisition.
From 2003 to 2006 we’ve experienced over 5X revenue growth while being fully
engaged in a growth strategy that projects revenues well over $100 million in
the next two years. We are expecting to see approximately 5 to 10 percent
organic (internal) growth from our office solutions imaging operating companies,
while defining a specific acquisition program for our core companies to buy
additional satellite operations. As I’ve mentioned often, in concert with our
acquisition program, creating strong alliances and partnering programs with
select, world-class manufacturers in the imaging industry of copying and wide
format solutions, is a key building block in the foundation of our overall plan.

iS: When you acquire a company, do you integrate or diversify that
firm under the parent company, or keep their management structure intact?

ML: We don’t believe in changing a company’s management culture.
Ultimately, it’s always about the people – and we want only those who want to
participate in a strategy for growth and profitability. Therefore, it is
critical to retain local management. We emphasize industry benchmarks to each
individual operating company; profitability per sales, revenues per employee,
profit margins, etc. Each company is P&L and balance sheet-driven as we focus
heavily on those individuals who want to partner with us through consistent and
well-defined programs for growth.

iS: So, "after the sale/buy" so to speak, do you remain involved in
providing ongoing support and services to these companies?

ML: Yes, that’s very important. Initially, we look for dealers who
have successfully established their local operations, having already developed a
sound infrastructure yet still wanting to expand their business through a
partnership. Separate from capital, we rely on these companies to meet industry
benchmarks. These are the vital indicators to ensure partnership accountability
in order to receive the desired result – achieving a profitable objective. Our
programs strategically develop and position each company to attain a stronger
growth pattern (from an alliance) rather than solely relying on being an
independent dealership.

iS: We know VET acquired and integrated Graphic Enterprises of Ohio in
2004, creating three subsidiaries, later merging two, and in 2005 acquired
Copeco, Inc., the oldest authorized Sharp dealer in Ohio.              Having
integrated these operations, how has this underscored your positioning for
growth in the imaging marketplace?

ML: GEI and VET’s joint partnership started it all. This acquisition
created a core platform. What emerged was a "go forward" strategy. By
restructuring VET, including first selling (divesting) a few businesses that did
not meet our performance goals in terms of capital returns, we have now achieved
significantly higher returns by focusing our resources on acquiring office
copier dealerships core to our growth strategy.

iS: How do you see wide format evolving over the next 3-5 years?

ML: Providing wide format solutions is a revenue stream opportunity
for the office copier dealer channel. Wide format equipment size, color
applications, flexibility and ease of use is expanding the market size every
year. Most copier dealers have not invested in this growth opportunity and
should understand their current customer base is purchasing wide format
solutions from other channels of distribution. In our strategy to acquire
multiple office-copier dealers in the USA, we will encourage them to look at
additional revenue streams such as providing wide format solutions. Our wide
format operating company sells and services throughout North America.

iS: What are the most common applications for color wide format?

ML: The wide format business has primarily been in two markets: the
traditional AEC market (architects/blueprints; engineers/contractors;
construction/builders, etc.) and the graphics market (notably signage, banners,
etc.). There is a marks-on-paper shift to color output where previously it was
mostly black-and-white due to cost. Expanding the color base now allows a
digital communications gateway. The latest cost-effective technologies are
becoming much more available and are easier to install, are network compatible
and more efficient. There are now eco-solvent systems that allow printing on
multiple stock paper (substrates) that have effective CPC. Scanning is also
evolving as it becomes more affordable. The scan to print system has
traditionally been the system used in the AEC market. There are multiple
opportunities here for dealers to sell, install and service these systems.
Digital signage is a huge color market offering, including local governments
utilizing this service for their advertisers on public transportation, such as
buses and billboards.

iS: What is the most unusual application that you have ever come

ML: Wide format replica antique prints. One of our customers is
licensed to reproduce antique European prints onto antique parchment stock, then
watercolors the prints for sale to mid and high-end hotels and retail shops. The
effect is amazing. There are many printing opportunities available today; it’s
just a matter of educating the dealer in order to capitalize on them.

iS: From a dealership’s standpoint, why do companies want to be part
of VET as opposed to not? What is better about being with a larger "parent"

ML: Becoming a member of the VisualEdge family of imaging solutions
companies gives the dealer the freedom to focus on the core business of selling
and servicing customers. They can experience almost immediate benefits from the
synergy of professional services such as insurance, banking, legal, auditing,
benefit plans, and other areas. Capital for market expansion becomes available
to expand the sales force, upgrade facilities, expand product lines and even buy
out local competition. The authority to run the day-to-day operations and the
decision-making is concentrated at the dealer level with full balance sheet and
P&L responsibility. Vendor opportunities, new products, financing, customer
support and other business-enhancing services are available to all the
subsidiary companies. And, through equity ownership, the dealer has the
opportunity to participate in the growth in value of VET.

iS: What are the criteria for selecting a company?

ML: Targeted companies should reflect year-over-year revenue increases
with good profitability, strong local or regional presence, excellent vendor
relationships, and strong entrepreneurs and key managers willing to remain after
the acquisition, helping to lead the company.

iS: What offerings do you make to keep existing management in place in
a newly acquired company?

ML: When they join VET, these entrepreneurs can set a floor on the
downside risk of business ownership while fully participating in the "upside." A
dealer can diversify risk by taking some or all of his existing value in cash;
transactions can be structured in such a way as to provide maximum tax
efficiencies for the dealer. VET stock ownership is a portfolio of other
well-run companies sharing the same vision, and a potential future liquidity
event could represent a significant value-multiplier for the VET stakeholders.

iS: Thank you, Mark. In conclusion we’d also like to point out that
VisualEdge companies partner with leading edge manufacturers through a number of
distribution and third-party service relationships which include Agfa, Canon,
Colortrac, DuPont, Epson, HP, Konica Minolta, Kyocera, Mutoh, Muratec, Oki,
Ricoh and Sharp. The companies created by the merger of VET and GEI are leading,
worldwide, value-added solutions providers, and consist of product development,
distribution, service and support. The combination of wide format sales
leadership, copier solutions expertise, and superior service provider strengths
assuredly places the parent company, VisualEdge, in a unique leadership position
for continued growth in the marketplace.

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