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Tom Johnson: An Expert's Advice

9 Jul, 2004 By: Aaron Shea imageSource

Tom Johnson: An Expert's Advice

Sixty-four and counting…

if Global Imaging Systems CEO Tom Johnson continues to follow the acquisition
plan he created when he founded the copier dealer conglomerate a decade ago,
anticipate a whole heap of calculating occurring at the company’s Tampa, Florida

Johnson intends for his $750 million juggernaut to not only continue
expanding—it has recorded increased annual revenues every year since its
inception—but to double in size in the next five years.

hear pundits say that the margins are down on this and the margins are down on
that. Somebody should take a look at our public record,” Johnson said. “Our
margins are stable. Our profitability has never been better.

long term goal is to be in the top 250 markets in the United States and Canada,”
he added. “We’re probably half way there now.”

company just recently completed its 64th and largest acquisition ever by seizing
Imagine Technology Group, a 22-location dealership with $117 million in annual
revenues. The purchase now places Global Imaging in 173 offices throughout the
United States and has increased the company’s workforce to 3,800.

of this has been achieved through Johnson’s uncanny ability to evaluate
dealerships, acquire them and then take them to another level of profitability.
And unlike other dealership giants, the University of Florida graduate, who also
has an MBA from the Harvard Business School, typically operates the dealerships
under their pre-acquisition names with their pre-acquisition management to
preserve customer relationships.

we buy a company, if we did the job right on the acquisition, it is seamless to
the customer,” said Johnson, who crafted his copier career at Alco Standard and
later became COO of Danka Business Systems before beginning Global. “All we find
out later on is the company has a much bigger imprint now and it has a lot more
stable financial opportunity to provide customers with better service and higher
end products.”

During a telephone interview with imageSource, Johnson discussed the
secrets of his success, his views on the state of the document imaging industry
and even offered some tips for small to medium-sized dealerships.

Your expertise is on the acquisition side?

I’m actually more of an operating guy, but I learned early on at Alco Standard
that if you’re going to have someone else doing acquisitions for you, it might
be hard to make your business plan with somebody else’s thoughts about what’s a
good acquisition. So what evolved early on at Alco helped me get into the copier
business. The whole idea was being that if you’re going to be in an operating
job and somebody says, “here is an acquisition, make money and make your plan,”
you better be the one who is doing the acquisition and kicking the tires early

So you actually got into a lot of these dealerships yourself and did
your own due diligence?

I was in all of them. Alco had made a start with a couple of paper executives
going out and trying to buy a copier business. They had bought six and three of
those six were doing just awful and three were doing great. That’s when they
reached out to bring in a person from the outside and me from the inside to
straighten it out or get rid of it or build it up and get it on the road. It was
clear from the start this was a business we wanted to be in. It was very
profitable. There was a lot of opportunity. So the decision was made with the
reports that I gave back to the board that, “hey, we should spend money in this
thing,” and they authorized me $150 million to go out and start building it up
and that’s how I got into [the copier industry]. One thing you learned early on
at Alco Standard is the right way to do acquisitions. That’s where I got my

What are you looking for during an acquisition?

What we have targeted are the younger guys in the industry. We have about 80
percent of the management teams of all the acquisitions we’ve bought. We’ve had
several owners retire after a three to five-year transition. Those were planned.
Of course we had a couple of unexpected transitions where I let [owners] go
because they got a little lazy in the business. But we’ve still been able to
keep a high percentage of the management teams in place. I think there are a few
reasons for that. Our whole goal is to take away a lot of the ticky-tacky,
day-to-day stuff that irritates a guy running a business and allow them to do
more in the area of what is fun in business. And I’m talking about removing the
burden of having to deal with insurance companies, accountants, lawyers,
bankers, etc. If they have a good investment, we have cash. We take care of all
the liability, health insurance and 401K. All of that is done at Global. So what
that does is give owners and their teams more hours in the day to go out
recruit, hire and train sales and service professionals. If you look at any
statistic, something in the high 80 percentile of acquisitions are failures, and
we’ve had about a 96 percent success rate. The difference is we spend as much
time on the people side [of acquisitions] as we do on the financial side [of

When you were building Global, what were your keys to success,
differentiating yourself from the competition and keeping it on top?

It has been pretty simple. We have a simple business plan. We know who we are
buying. We pay a decent price then we get a commitment out of [the seller] and a
mutual respect during the acquisition process and that carries over into the
operations. We don’t tell [the company we are going to purchase] lies, we don’t
try to screw them on price and we give them business plans that are achievable.
We have a staff of professionals at our headquarters to help them understand our
model and help them be better. That is attractive to entrepreneurs and that is
what has made us different. We have been able to have a mutual commitment with
the people we have bought and several of them have coined the term, “we bought
in, we didn’t sell out.” I think that a key for us is that we’ve had the
reputation early on of fair and open dealings. We’ve been able to maintain that.
The difference is how you treat and respect the people. And the real key is
something that I say a lot of times, we do a lot of things centralized because
we’re a public company. We have to. But we don’t centralize anything that
touches the customer. That is all local. What we have is great local culture and
great local companies with great local advertising serving great local

Do you believe that gives you an advantage over your competitors?

Everything that touches the customer is in the local market from inventorying
the products so they can get it out to customers the next day, unlike some of
our bigger competitors that take a week to 10 days. We have the best dispatching
productivity I think in the nation and we get it with dispatchers locally, not
from dispatchers in a big, centralized call unit. People still know the
customers and they know the streets to get the service techs there the most
efficient. They know which service techs have the skills to fix a particular
machine. When we buy a company, if we did the job right on the acquisition, it
is seamless to the customer. All we find out later on is the company has a much
bigger imprint now and it has a lot more stable financial opportunity to provide
customers with better service and higher end products.

When a dealer is dressing his business for sale, what are the most
important things he should do in preparing to sell a business?

The best thing they can do in preparing to sell a business is run it like a
business and not as a cookie store for the owner. What everybody is looking at
is to take the books and recast them as if the business had been owned in the
previous 12 months by the purchaser. The more expenses that are hidden in there,
the more difficult it is to get someone their real value. The real thing we look
for in a business is, is the customer service really good? And their
profitability may not be as good as ours, but we haven’t had a single company
that we have bought that didn’t improve its profitability. What we’re looking
for is, do they have the best reputation with the customer? That will reflect
positively on us and we can help make it even better with our experience.

So it takes many years of dressing? You’re not going to do that in 12

And that’s a misconception that you can put a dressing on [a business] in 12
months. You may be able to do that for some unsophisticated buyers. But for
somebody like me and my team, it’s not going to work. I’ve been in over 1,000
dealers kicking the tires. You’re not going to be able to tie a bow around it
and slip it past us.

What do you think was the most significant thing that has happened in
the copier industry in the last two years, and how did Global capitalize on it?

I don’t think much of significance has happened in the last two years. I think
it started back in 1995 to 1997 with the advent of the digital machines. I think
what has happened in the last two years is the third generation of the digital
machines that are allowing dealers much more ease into connecting to the
networks and thereby giving the customer better service because of that ease. I
think that will keep getting better and better and that has had the most impact.
There is no question that the additional features and the migration down of the
finishing capabilities as well as the multifunctional devices that we can put in
now that replace printers and can scan to fax and scan to email have been
significant. I hear pundits say that the margins are down on this and the
margins are down on that. Somebody should take a look at our public record. Our
margins are stable. Our profitability has never been better. It all depends how
you run the business and the ability to go in like we are today and compete for
all the prints and customers. I think the major revolution in the last couple of
years has not only been what I just talked about, but office color coming into
its own.

What emerging technologies do you think will have the biggest impact on
the industry in the next couple of years?

The advent of products that do black and white and color and have the ability to
track meters on each is going to have a major impact.

What is the biggest challenge facing the industry over the next couple
of years and how will Global position itself to manage the challenge?

I think the biggest challenge facing the industry for the dealer is to continue
to show that they can cover the areas manufacturers can’t. All the manufacturers
have direct operations that focus on the Fortune 1000, etc. In general, those
are not very well run operations in my opinion. The thing that direct operations
seem to know how to do is sell for discounts and not necessarily sell for value.
Dealers really have to carve that local niche with local service and make sure
they stay on top of their game so they have the money to reinvest into the
latest technology like GPS in addition to software. All of these things you have
to have money to be able to do and they actually add money to your business
because they are capable of increasing your productivity.

If you were a smaller independent dealer up the street, how would you
deal with OEMs opening in your backyard?

In general, those OEMs are going after the major accounts. The only time we have
bumped up against them is when we’re going after a major account that is not
spread over a number of states. We only do major accounts that are in a
contiguous geographic area. What we find is that OEMs are not very effective
because their service is not very good. We can bring value to the customer. The
key is not who you buy it from, but who services the best. There we can
differentiate ourselves pretty readily. If all they have to offer is price, and
if we have a lot better productivity than them, we can match their price and
turn it into a much higher level of profit. They’re a pain in the ass.
Sometimes, we get the groaning from the sales reps all the time, “oh, Canon is
giving it away,” or “Ricoh is giving it away.” Blah, blah, blah. So what. You’re
out there competing against five or six dealers in each piece of business

From the Tom Johnson school of thought, what is the decision you would
make as far as integrating software solutions into a current business model or
developing separate business?

I think for smaller dealers you don’t want to get too heavily into the document
management side of it. It gets away from hard copy and the managing of the hard
copy. Stay away from storage and retrieval. That’s an absolute specialty and
it’s also very difficult to make money in. The actual document management cycle
where you’re trying to go in and give a solution to a customer to lower their
count of machines and get higher clicks, which gives you the higher profit in
the after market, is the business you need to get in. They need to partner
strongly with their manufacturer because all the manufacturers offer
state-of-the-art software to help the machines do all the things the customers
want them to do. The fact that there is such an array can be mind boggling,
that’s what the sales management and senior management of a small dealer has to

When a dealership is in trouble, what should become its top priorities?

Most dealers tend to be sales entrepreneurs and they seem to think when a
business gets in trouble the thing to do is fire the sales manager and hire a
new one and we’re going to sell our way out of this. If you’re not making a lot
of money on service and supplies you’re not going to make money. It’s going to
kill you because you can’t sell your way out because the selling cycle in our
business is really a loss these days. It’s a four to seven percent loss any way
you stack it, when fully loaded. So if you’re not making the efficiencies and
productivities and the margins in service and supplies, then that’s where you
need to have focus. Of course there are companies that have lousy sales
organizations too. We call them “upside down” when we see them, which means that
the sales expense is higher than the sales margin. So if you have a company
doing a 27 percent gross margin in equipment and its sales expense is 32
percent, every item they sell, even before administration [costs], they are
losing five percent. Then you tack on a 12 to 15 to 17 percent for
administration and they are losing 20 cents on the dollar on every sale. You
can’t make enough in service and supplies to offset that. That is mostly
discipline and being able to set the right compensation plan for the sales reps
and then demand the activity.

What is Global going to look like five years from now?

I think you are going to see we are going to be double in size in five years. We
will continue our goal to have core businesses in all the top 250 markets in the
United States and Canada. I think you will see us make our first foray into
Canada. We have 17 core businesses now and it’s going to 26 or so to cover all
markets we want to cover. We have 173 offices. We’re probably going to need
about 290 or 300 to cover those 250 markets because some markets you want to
have three or four offices because they are so huge like New York City for

Do you think there are opportunities out there for new dealers? Do you
see the dealership market as a growth opportunity?

Absolutely. When you are out there talking to guys at dealer meetings some of
the best dealers out there now are the ones that have been started in the last
five to seven years and they’ve grown from $0 to $20 million, $0 to $25 million,
$0 to $17 million. It’s all about attitude.

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