The industry and business in general find themselves in an era of belt-tightening and adhering to a wait-and-see mentality when it comes to investments, particularly in acquisitions. It seems John Lowery never received that memo.
The president and CEO of Applied Imaging, headquartered in Grand Rapids, Michigan, has been a man on a mission. Ever since the onset of the pandemic, his dealership has added four companies via acquisition– Kopy Sales of Traverse City, Michigan; Upstream Office Solutions in Tampa, Florida; ACR of Luna Pier, Michigan; and most recently, Lasers Resource, also located in Grand Rapids.
In this edition of Two-Minute Drill, we spoke with Lowery and Marketing Strategist Sheila Keller about the philosophy of making strategic investments during a downturn, valuating businesses and market growth opportunities, along with the potential for future deals.
Applied Imaging recently announced its fourth acquisition since the onset of the pandemic. What compelled you to onboard Lasers Resource?
AI: The Lasers Resource acquisition is especially strategic because it has helped us develop a tighter relationship with HP. With new offerings, we believe that we can deliver more value to our customers and go to market in a way that we were not before.
At a time when many dealers are keeping a tight rein on investments, you have been among the most active on the M&A front. Tell us a little about the opportunities you are seeing in the market.
AI: Economists said, if you make investments when the market is down, it’ll position you for success in the future. If you go back to 2008/2009, grabbing market share at that time was a great choice for many businesses, including Applied Imaging. When the pandemic hit, our first thought was: How will this affect us? Our second thought was: We do not want to let a single employee go. This was the most important thing to us. Our employees are the backbone of the organization and so many families depended on us to make it through.
A large part of our business is the aftermarket side, defined as the number of pages printed, copied, or incoming faxes being registered through the copiers and printers we sell. With many businesses not in the office and turning to a work-from-home model, our aftermarket side of the house had declined. For example, we have 120 schools in our service area and each copy or print they make contributes to our aftermarket number. With schools closed for so long, it’s easy to see that we had to reinvent ourselves and plan for future growth while also making up for the loss from the pandemic.
We feel the acquisitions we’ve made in the latter part of 2020 have positioned us for a bright future when the pandemic ceases. In addition, we’ve diversified our portfolio of offerings to reflect what the market is looking for. The managed network services industry is significant to our business and has been for many years. With that, we acquired a company called Maven, which was part of Blackport Solutions, and have since added telephony and carrier services to our growing number of offerings through our NetSmart Plus division. These portfolio additions complement the already expanded managed service offerings we have such as managed and co-managed IT services, security, business continuity, infrastructure management, security awareness training and more. With our 10,000-plus customers, we knew this would be a perfect service to offer them and have gotten a lot of interest.
As you can tell from our website, appliedimaging.com, we are migrating from a “copier company” to a total technology provider for businesses. With the goals we had in place to supplement our aftermarket loss from the pandemic, it’s safe to say we were able to overachieve those goals with these acquisitions and portfolio additions.
Valuating a prospective acquisition can be tricky, given how the pandemic has skewed financials. As the trailing 12-month performance would seemingly cloud the picture, what other determinants have enabled you to assess value?
AI: Market opportunity, to us, is the largest determinant of value. Tampa was a more strategic acquisition for us. We looked at the long-term growth in the Florida market (expanding to 42 million people through 2050) and the market opportunity was huge for us down there. We feel we can grow that business alone to $100 million in the Florida marketplace. We are continuing to look for acquisitions in Florida and see ourselves expanding there relatively quickly. Our five-year goal as a company is to get to $200 million. We have been strategically working to find additional streams of business throughout the Midwest and South to promote growth for Applied Imaging and achieve our goal. We had not made any acquisitions for the prior two years and we stockpiled our cash. During the downturn, we found businesses that were interested in selling and it worked out great for us. We did the same thing in 2008/2009 and achieved a huge growth spurt.
Without fully tipping your hand, what can we expect to see from Applied Imaging in terms of future deals?
AI: We were and continue to double down on Southeast Michigan. Detroit is a great market for us. We purchased a 65,000-square-foot building in Southfield that now serves as our Southeast Michigan headquarters so we can have a larger physical presence in the area and continue to provide great service to Metro Detroit. We are continuing to invest there and now feel like, coming out of the pandemic, Southeast Michigan will continue to be a great market for us. We’ve secured some amazing partnerships (Official Technology Partners of the Detroit Lions, Kalitta Racing) and are working on some additional ones (to be released soon). We can’t reveal plans for future growth at this time; however, many of our acquisitions will be thoughtful and add new product and service lines that will help our current customers and prospects to work with a company that can manage every aspect of their information lifecycle.
