There’s no denying that Xerox’s Global Partner Summit in March carried a bit of added excitement, given the manufacturer’s previously announced acquisition of A4 specialist Lexmark. During a period when a number of OEMs have hammered out partnership agreements of varying flavors, this old-fashioned transaction (a lower value than in 2016) dovetails with Xerox’s ITsavvy addition from last fall, augmenting two of the three legs of its business stool.
The deal created a consistent hum among the 600 attendees who flocked to Las Vegas for the March 10–12 Global Partner Summit. This was a liberated Xerox, free of the influence wielded by an activist investor (whose stake was bought out in 2023 for $542 million) and several years removed from the public play for HP orchestrated by the previous leadership regime. This event was about a manufacturer underscoring its commitment to print boxes, a burgeoning IT offering and evolving digital services component. Most of all, it was a reconnection with dealer partners and a promise to help put them in a position to enjoy success.
During the Summit, ENX Magazine had the opportunity to sit down with John Bruno, Xerox’s president and COO, to talk at length about the Lexmark acquisition. While much of the product positioning and big-picture strategy won’t come to light until after the deal’s closing in the second half of the year, Bruno shared insight into the genesis of the deal, the hiccups encountered along the way and the synergies between the companies. Perhaps above all else, he spoke of how Xerox is eager to make investments in its product and service portfolio, which could position the company (and its partners) for long-term success.
How long of a process was it from first overture with Lexmark until signing off on the basic agreement?
Bruno: It was a six-month process that we came close to completing, but those talks broke apart in February 2024. We took another shot at it during the summer and really drove it home, announcing the deal in December. We were determined to complete it. Since we had to have permission from the board of directors to pursue the acquisition, you can time our engagement with the exit of an activist investor.
Presumably there are many regulatory hoops to jump through in the U.S. and globally.
Bruno: Definitely. There are the standard ones such as Hart-Scott-Rodino [the Federal Trade Commission and Department of Justice filings to safeguard against deals that run counter to U.S. antitrust laws]. The toughest one is Chinese regulation and the process of going through their shareholders. Ninestar is the dominant shareholder, then PAG Asia Capital and a third [Shanghai Shouda Investment Centre]. All the work that’s required takes months to accomplish, but we anticipate it will be completed in the second half of the year. So far, we haven’t had any indications there are any issues. It just takes time because the notice period in China is different from the one in the U.S.
Tell us about the history of the Xerox-Lexmark partnership.
Bruno: It’s been almost three years since we first partnered. A few months ago, we shipped the one-millionth Xerox-branded OEM unit. They’re the OEM supplier to us for our A4 box. We’ve also had teams that have worked together on development and engineering.
At what juncture of this relationship was it determined that Lexmark and Xerox partners would be better served by a union of the companies?
Bruno: There’s been a conviction between our companies that it would be beneficial. The industrial logic has been pretty sound. There are shareholders that own the two companies. Previously, we were held by an activist investor who didn’t want to see us invest in any more print. So as long as he held a stake in the company, we were going nowhere. So really, it didn’t matter how much the deal made sense from an industrial standpoint. What else could we possibly double down on when we’re a printing company? The investor felt it would be too risky; he reasoned that A4s could decline faster.
Meanwhile, Ninestar—a privately held business—was trying to build its investment thesis. Then there were changes to our governance and strategy. Add in the changes to their governance and being put on the NSA watch list. There was just a lot of interference, but the potential for a deal has always been there. We knew we could get a great performance out of the combined business. The interference was too much of a high hurdle, but we just kept chipping and chipping away at it.
This union is truly a ‘one plus one equals three’ proposition. This has geographic proximity, which makes great sense. We have cultural alignment and go-to-market alignment, both of which make great sense. They’re held privately, and we’re a public company. We want to own them. If you’re over at Lexmark, you’re sitting there thinking that you’re private now, but who’s going to own you? In the end, it’s going to be another financial, private-equity company that’s got another thesis or strategic plan. For them, being owned by a strategic company is a great outcome, and for us, getting this asset at the right financial metrics makes great sense. We get great leverage and great diversity of our portfolio. Now we just have to do a good job integrating.
What were some of the other Lexmark characteristics that Xerox found appealing?
Bruno: Aside from the geographic proximity and culture, which are big, we found their focus on technology ownership, client intimacy and vertical integration were compelling. A lot of things they do well fit nicely inside our portfolio. This deal means we no longer have to have margin-on-margin business; we no longer have to charge margin on top of the margin they charge in selling the product to us. That gives us a better route to market. Another thing, because we work so closely with Lexmark, is we like their engineering and development teams. Meanwhile, there are things that we do that add value to their platform. When you add in our software, workplace, the cloud and our AR features, it becomes a more powerful solution set.
Lexmark is very effective in the marketplace as an OEM for the A4 platform, and it’s a platform that’s very well built. So when you start looking at the performance of the engines, I can see a world where, over time, the A3 portfolio gets rationalized more, and a lot of the workloads that are on A3 machines will find their ways onto the top end of an A4 with more finishing. And we believe they have the right platform to do that. So we think we can help reshape the trajectory of the industry with their platform. I think all those things line up pretty well.
Clearly, Xerox got a better deal than it would have, say, four years ago.
Bruno: It’s unfortunate, given the amount of headwinds that CFIUS [Committee on Foreign Investment in the United States] and the NSA [National Security Agency] put on their core business, which made it a more attractive acquisition for us. At the same time, it’s a better opportunity for them, making it a win-win on both sides.
Do you feel it opens the door to some good cross-selling opportunities?
Bruno: I would say yes. The interesting part is there are a lot fewer revenue dis-synergies than I thought there would be; those areas where clients would need to make a choice between them or us. If you look at where they sell, they’re very large and direct into some of the segments such as retail and pharmacies. We’re not in those same places. Likewise, Lexmark isn’t in some of the same places we are, but in those places where we’re in the same account, we’re in different parts of it. I cannot name clients without permission, but there are two substantial clients with whom Xerox has the back of the house with the production machines, and Lexmark is in the front with office machines. The clients are buying MPS from both of us. Now they’ll be Xerox clients, front and back. While we don’t see a lot of dis-synergies, we have to be thoughtful about dealers, distributors and partners with whom we compete directly and indirectly, but it’s not a significant overlap.
It will be interesting to see the fate of Lexmark’s 9-Series line of A3 devices, which tech analyst firm IDC called “disruptive,” but that will have to wait for another day.
Bruno: Yes, obviously I can’t speak to the future of the line until the deal closes. The products, clients and data information are all post-close topics. Until then, we’re two independent companies.
What are your thoughts as to Xerox’s positioning in the market post-completion?
Bruno: We want to be the strong No. 2 in the market. Lexmark has great OEM relationships, and the 800-pound gorilla in the room is they’re significantly larger than us in the A4 space. We have a broader portfolio, but we think we’re a much more competitive company with them. This makes us a stronger No. 2 in that spot, and we intend to be No. 1 or No. 2 in every market in which we participate. If we’re not top two, I’ll start to lose interest because it’s very hard to stay and maintain that.
You had a memorable 2024, which also included the acquisition of ITsavvy. Are there any unturned stones that could provide good fortification for Xerox?
Bruno: I think we have plenty of opportunities to strengthen within IT solutions, additional capabilities to sit on top of the platform we’ve built. We’ve acquired additional services such as managed security that will provide enhancements. Our entire digital services line is really nascent relative to the opportunity in the market. That’s the smallest of the three legs of our stool, following print and IT solutions. I’ve driven the company by saying you cannot have three first priorities, so strengthening the fundamentals of print is core to a successful business. We haven’t put the same shoulder behind digital services as we have with print and IT. So that’s one area where I would say there’s a ton of opportunity for us that we haven’t even unearthed only because we haven’t spent the time to focus on it.
Nominate your dealership today!
