The Past, Present and Future of Independent Dealer Acquisitions7 Sep, 2004 By: Bob Sostilio imageSource
The Past, Present and Future of Independent Dealer Acquisitions
Consider the capacity of the office equipment dealer channel and how it has
narrowed significantly over the last 20 years. The ranks of the entrepreneurial
independent copier dealer continue to dwindle due in large part to the
consolidation and acquisitions of dealerships as well as the departure of
several companies. Once a channel consisting of over 7,800 independent copier
dealers that accounted for a 59 percent share of unit sales and 46.7 percent of
revenues, the channel now is estimated at less than 4,000 independent
entrepreneurs that account for 33 percent of unit sales, but have a bigger
portion of the revenue pie.
departure of companies like Apeco, Roneo and Olivetti in the early 1980s and the
recent consolidation and acquisition actions taken by Ricoh (Savin, Gestetner
and Lanier), Konica Minolta and Kyocera (Kyocera and Mita) have contributed to
the reduction of the overall number of active dealers. Although outright
acquisitions have thinned the independent herd, the most recent examples being
Global Imaging Systems’ purchase of Imagine Technology Group’s 22 locations and
Toshiba’s 20th acquisition of a dealer with 10 locations, the independent
channel is still a viable entity that is maintaining growth and profitability.
following snap shots in time are my observations of the events that have led up
to today’s activities and why they are taking place in a market experiencing new
technology, lower hardware margins and direct competition from suppliers.
Twenty years ago two out of every three copiers sold in the United States and
almost half of every dollar of hardware revenue was captured by independent
dealers. A significant number of investors looking for larger returns on
investments shined a spotlight on the underappreciated $20 billion copier market
that was enjoying double digit growth. It was not uncommon for them to find
copier dealerships with annual sales that grew from $500,000 to $10 million in
less than ten years, which many accomplished carrying a single line of products
four companies that generated the most excitement during the 1980s were Alco
Office Products Group (now IKON), a division of Alco Standard Corporation,
Hillman (later purchased by Alco Standard), Erskine House Group plc (later
purchased by Alco Standard) and Danka Business Systems (later purchased by
Newcourt). Those companies aggressively scoured through the population of over
7,800 independent dealers for possible candidates that exhibited double digit
growth in pretax returns and had a good reputation in their respective markets.
of the larger dealers with annual sales in excess of $20 Million, however, had
issues early on about selling their dealerships. Some hesitated in selling
because of the emotions involved in relinquishing a very successful business
while others were concerned about what would happen to their long-term loyal
employees. Many other dealers came to view the acquisition process as a means of
securing a financial future, which would not solely be based upon their own
individual performance and, therefore, sat back as more companies such as
American Business Systems (founded by D. Doyle, former owner of Danka), NBI,
Inc. and others joined the fray.
dealers who maintained ongoing profitability; carried little to no debt; had
more then $10 Million in annual sales; a customer base whose active accounts
were covered by maintenance agreements; $100,000 in annual revenue per employee;
and inventory turns of less than five times per year were possible candidates
Acquisitions continued into the 1990s but took on a different set of
initiatives. The ultimate goal was still to acquire a successful dealership in a
growing market, but now they had to have digital experience. But the acquirers
were dealing with a dealer population that had shrunk from a high of 4,600 in
the early 1990s to just over 3,500 by the year 2001.
Larger dealers who were buying smaller dealerships found themselves competing
with new acquisition firms such as Global Imaging, TOPAC (a subsidiary of
Toshiba), Castle and Copy Duplicating Products. As the era progressed, Alco
Standard Products reached 800 sites and changed its name to IKON while Danka’s
coverage extended to 41 states and 124 locations. Dealer profiles changed as
well, making it more difficult to conduct due diligence. They were carrying
multiple lines and new products, including printers and software in addition to
offering customers additional services such as help desks and network
installation. The channel strategy had evolved from standalone to document
imaging, work flow and networking, assets not previously listed on a ledger
Toshiba and Global continue to be the most active entities in acquisitions
trying to improve market coverage and deliverables. IKON and Danka are not
actively acquiring new dealers; instead, they have consolidated many of their
dealerships into more efficient organizations while reducing redundancies and
Copier vendors, however, are not to be ignored. They are assessing direct
operations on a market-by-market basis as they realize declining hardware
margins. They view service income as the only real profit generator. Some of
those manufacturers have already executed change, such as Canon opening 20
branches covering 26 markets and Ricoh with 23 direct sites in eight markets.
The only company to retreat is Panasonic, which closed seven of its 13 branches.
Xerox, Imagistics (spun off from Pitney Bowes) and Oce are still predominately
direct operations that now have to compete with IKON, Global and the other
vendors with direct operations. Only Sharp and Kyocera rely almost exclusively
on independent dealers.
independent copier dealers are still viable acquisition candidates, however. We
believe as markets evolve through the next four years acquisitions will
continue, but at a slower rate.
Acquisition companies today are looking for dealerships with multiple locations,
annual sales in excess of $18 Million and operating with a certain level of
automation within the dealership. They want to know how lease buy-outs are
structured and if service costs are tracked differently for rental accounts
versus those under service contracts. They will scrutinize employee benefit
costs, sales reps compensation and productivity of every employee. Of course,
the product brand weighs heavy in the decision making process. The acquirer
wants to know how many units are covered by service contracts, what are the
yearly supply sales per unit, are service technician’s wages calculated in the
cost-per-copy program, plus does each service technician’s coverage area consist
of a given page volume or actual number of machines.
you do the bookkeeping, you can identify your account activity in a manner that
is measurable and show an income and growth in a major market without hitting
critical mass, then chances are you too can become a candidate for acquisition.
dealer pool will continue to shrink in diameter but will remain deep with
quality entrepreneurs who know how to run a successful dealership. The direct
channel will continue its current trend of capturing a higher percentage of unit
placements, but will not eliminate the competing dealership.
and Imagistics will realize companies like IKON, Global, Toshiba, Canon and
Ricoh can compete with them on a national basis and have to revisit their own
channel strategies if they want to continue to maintain their market shares. As
the percentage of direct sales revenue continues to recover, larger dealers will
find it profitable to continue acquiring smaller independent dealers.
is the nature of our industry and will continue to be as color and connectivity
technology push aside slower, less profitable standalone models. The independent
dealer pool may be smaller but it consists of very profitable entities that know
how to prosper in a market that is becoming more connected to the customer base.