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From the typewriter to the cloud, Marco has experienced the full range of technology waves throughout its 45-year history. The St. Cloud, MN-based dealership has grown to a dominant position within the office technology stratosphere, acquiring 37 dealerships since 2005 to push its annual revenue toward the $400-million plateau.<\/p>\n
You\u2019d be hard-pressed to find any Smith-Corona models on the Marconet.com website these days. The megadealer, backed by a nationwide workforce of 1,200, boasts facilities in nine states, but employs a national scope that serves in excess of 32,000 customers. It counts Konica Minolta, Sharp, HP, Canon and Toshiba as its primary copier and MFP providers, and relies on the tech offerings of giants such as Cisco, Microsoft and Tech Data.<\/p>\n
![\"\"](\"http:\/\/www.enxmag.com\/twii\/wp-content\/uploads\/2018\/07\/Jeff-Jennifer-Cropped.jpg\")
Jeff Gau, CEO of Marco, and Jennifer Mrozek, executive vice president of Business Development & Operations<\/p><\/div>\n
Renowned for its acquisition proclivities, Marco has positioned itself as an IT services provider, accounting for nearly half (45 percent) of its annual revenue. The M&A portion is complementary to Marco\u2019s organic growth, providing cross-selling opportunities for IT services to its new books of business.<\/p>\n
We spoke with Jeff Gau, CEO of Marco, along with Jennifer Mrozek, executive vice president of Business Development & Operations, to gain insight into the firm\u2019s strategic M&A path, its obsession with customer and employee satisfaction, and its partnership with private equity backer Norwest Equity Partners\u2014all of which have played a vital role in continuing Marco\u2019s heartland (and national) dominance.<\/p>\n
How was business in 2017?<\/strong><\/p>\n Gau<\/strong>: We continued to see nice double-digit growth at 16.5 percent, with profitability up over 20 percent. Managed IT services, recurring services and average top- and bottom-line growth all grew about 20 percent. We did three acquisitions last year, which is kind of low for us. It wasn\u2019t by design; it\u2019s just how they fell during the fiscal year. One of those was BusinessWare Solutions, the largest IT deal we\u2019ve done to date. It has integrated well for us and set the tone for a strong 2018. Our key strategy is we buy copier companies and layer IT services over it, so cross-selling is vital and has been a key driver for our organic growth.<\/p>\n What does Marco pride itself on?<\/strong><\/p>\n Gau<\/strong>: I like the fact that we have a 10-year compounded annual growth rate of 20 percent. It\u2019s helpful in attracting good people and customers to our organization. Our track record is strong and validated. We\u2019re scorekeepers; we had our best client-satisfaction index since we first implemented it in 1994. We ask our customers 12 simple questions, one of which we call the ultimate question: If you had the opportunity, would you recommend Marco? Ninety-three percent of respondents said yes. We send out 500 surveys every month and have an 80 percent return rate. This validates our quality service. We\u2019ve also measured employee satisfaction for the past 30 years. This year we had about a 90 percent return rate, with more than 1,000 survey responses to 100 questions. This lets us know how we\u2019re performing, what we\u2019re doing well and the areas where there\u2019s room to improve. We can validate what other people only claim. We have a 93 percent recommend rate from customers, and an employee-satisfaction index of over 90 percent.<\/p>\n A buzz of activity encompasses Marco\u2019s client services center<\/p><\/div>\n In the last few years, Marco has captured some best-workplace awards, including ones for millennials and women, and in a national ranking of midsized companies, we came in at number 14. That validates our strong culture. We\u2019ve also done a good job transitioning our company to IT services. A lot of companies are talking about it when they should be doing it. I haven\u2019t seen a lot of strong players in this area, and few can boast that IT accounts for half of their revenue.<\/p>\n How would you characterize the M&A landscape for the office technology industry? What are some of the variables and drivers behind the activity we\u2019ve witnessed during the past 24 months?<\/strong><\/p>\n Gau<\/strong>: We\u2019re seeing the highest multiples\u2014around five to seven\u2014paid to dealers since 2005, when we started making deals. Sizeable managed IT companies have higher values than copier companies; we\u2019ve seen strong multiples in that space. We\u2019ve also seen manufacturers diversify into managed services, medical devices or other categories. There are more buyers now. Private equity has entered the industry and has emerged as one of our biggest competitors for acquisitions.<\/p>\n CEO Jeff Gau (seated, center) alongside Marco\u2019s cast of millennial employees<\/p><\/div>\n Mrozek<\/strong>: As soon as you provide a range of five to seven, everyone thinks they should be a seven, but it\u2019s not necessarily the case. There are a lot of components necessary for a dealer to fit into that range. We do look at quality of revenue streams, lengths of contractual relationships with customers, and whether a dealer bundles agreements or keeps service and hardware separate. We also look at whether they\u2019ve effectively expanded into managed IT services and the size of their offering. Those recurring revenue streams are important. Long-term customer relationships and a lack of customer concentration\u2014those are all things we\u2019re looking at with dealerships. We look at every opportunity and determine a value based on its operations.<\/p>\n What is the ideal dealer profile for a potential Marco acquisition, in terms of geography, sales and service capabilities?<\/strong><\/p>\n Gau<\/strong>: There was a time when we sought smaller dealers in contiguous markets. Now, with the backing of our private equity partners, we\u2019ve integrated 37 acquisitions. Writing the check sometimes is the easy part; integration is the tough part, but we\u2019ve gotten really good at it. From a geographic expansion standpoint, we see the U.S. as our market. I don\u2019t know that we need to be in Manhattan anytime soon, but we\u2019d like to be in the state of New York, in the right markets. We have a lot of flexibility from a geography standpoint, and we like dealers with multiple locations. Once we get that initial movement into a state, like we did with Michigan, we can then do multiple acquisitions. That includes IT companies. We focus on copier dealers because that model offers contracted services, and we can layer our IT services over that marketplace. We\u2019ve done about a dozen IT acquisitions and will continue down that path.<\/p>\n Right now, I would say the market\u2019s hot. There\u2019s no deal that would be too small, even for a sub-$1million dealer, especially in an existing market that would make sense for us. On the other hand, we have the resources, skill sets and size to do a deal in excess of a couple hundred million dollars. Our strategy has broadened a lot in the last 36 months, and we\u2019re poised to expand the direction we\u2019ve been taking.<\/p>\n Marco\u2019s headquarters in St. Cloud, MN<\/p><\/div>\n What makes Marco an ideal M&A partner and what qualities does it bring to the table?<\/strong><\/p>\n Gau<\/strong>: We\u2019re not a manufacturer or a pure-play private equity firm. We\u2019re a dealer with strong financial backing that\u2019s been running successfully since 1973. We pay cash up front. Our IT capabilities are quite strong and we\u2019re one of the most respected resellers in the IT space, just like we are in the copier space. One of the things we do well is bring a mature IT process to the market. We\u2019ve validated our culture and people like to be a part of us. People like growth companies as opposed to stagnant companies. If you\u2019re a pure-play copier company, you probably don\u2019t have high growth.<\/p>\n Owners sell for a variety of reasons. One of them is they\u2019re making a decision on whether to invest into IT services or not, or maybe they\u2019ll transition it to a family member. Those things have to line up well and be pretty solid in order to run the next generation of their dealership. For sellers like that, we can build career paths for their people, not just jobs. They like that we have a good track record of taking care of customers.<\/p>\n Attendees gather for Marco\u2019s Technology Tradeshow: Taking Technology to the End Zone. The event was held September 14, 2016 at U.S. Bank Stadium, home of the NFL\u2019s Minnesota Vikings<\/p><\/div>\n Mrozek<\/strong>: We consider ourselves deal makers. We have a growth strategy that includes acquisition and we\u2019ve gone through this process 37 times. Quite often, we get comments about how easy we are to work with in putting these deals together. Much of it comes from our past experience. We know all of the legal issues and what items are important to sellers. Those are things that we address up front. We\u2019re a good partner in putting a transaction together, which can be a very stressful process for the seller.<\/p>\n Can you provide some general details regarding your vetting process?<\/strong><\/p>\n Gau<\/strong>: Every deal has its own personality. Given that sometimes dealers aren\u2019t making a lot of money, they feel they have to get their company ready to sell. That can be overemphasized. Sometimes, we\u2019ll evaluate a dealership that isn\u2019t knocking the cover off the ball from a profitability standpoint. But maybe they\u2019ve got strong client relationships, perhaps even started a managed IT process, and those investment costs may have mitigated their profitability somewhat. We give fair consideration in every potential deal. We probably won\u2019t pursue a sub-$1 million dealer in the middle of nowhere, but we did the Michigan move with one small and one larger dealer, almost at the same time. In the past, when we got to the stage where we signed a nondisclosure, 80-85 percent of the time we completed the deal.<\/p>\n We also look at companies that have an element of recurring services. Sometimes a dealer will have a furniture company, office supplies company or some other auxiliary business, like water. We\u2019re not necessarily interested in those elements, but when we\u2019ve bought portions of dealerships, we\u2019ve helped dealers find buyers for those non-core segments. However, we added a shredding business that was a part of the St. Louis company we acquired. Shredding fits much of the criteria that we have for recurring revenue and contracts. We did a good job with it and expanded it into a new market.<\/p>\n Marco\u2019s spacious lobby<\/p><\/div>\n Marco was acquired by Norwest Equity Partners in late 2015. How has this relationship buffered Marco with its M&A strategy?<\/strong><\/p>\n Gau<\/strong>: We have a strong relationship with them and they view us as one of their top portfolio companies. We\u2019ve added about 270 employees, bought 12 companies and almost doubled in size since they acquired us. Good numbers make for good relationships. I have a boss now, (Managing General Partner) Tim DeVries, who I respect and admire. We\u2019ve heard nothing but good things about them. I was a little nervous about the move at first, but it was an excellent tool for us to transition our business and continue to grow.<\/p>\n Mrozek<\/strong>: They\u2019ve assisted us in formulating structures of deals to help get them done. We have strong backing and support from them, and we also have access to capital resources in order for us to execute on our acquisition strategy, probably even more aggressively than we did previously.<\/p>\n What do you look for in your employees and how do you recruit and retain good ones?<\/strong><\/p>\n Gau<\/strong>: We recognize that many companies have great cultures, and we don\u2019t buy good companies with the intention of breaking them. A part of effective integration, attraction and retention is making sure you bear that in mind. We\u2019ve learned that during our acquisition journey. Everyone claims to have a strong culture, but most of the time they can\u2019t prove it. Our pursuit of validating culture through the survey process we\u2019ve done for 30 years, and our process of surveying customers, are keys to attracting and retaining good people. We have two people dedicated to extracting our performance information from the field, which helps us prove or improve our customer satisfaction.<\/p>\n Mrozek<\/strong>: We spend a lot of time spreading the word of our culture internally. Most recently, we developed a program called the Gold Standard. It\u2019s a branding initiative for employees to understand the makeup of Marco\u2019s culture, which is really our focus on customer relationships, employee relationships, community involvement and support of our vendors. We do a lot of internal activities to educate employees about our commitment to those aspects. I also think we proved the importance of those items through the acquisition integration process by doing our best to retain as many employees as possible. We\u2019ve created an operational platform that allows us to add people in many of the locations we acquire. We prefer to retain people in these branch offices that we obtain; these support people help create the culture. Many of the sales and service positions are held by people who live in the territories in which they work, and it\u2019s also important to maintain the support personnel. We\u2019re able to do that through acquisitions, and by having growth paths available for employees who support our entire organization. We have 50 or 60 requisitions open at any point in time for opportunities within the company, which makes it easier for us to keep and retain those people.<\/p>\n What was your dealership\u2019s biggest win last year?<\/strong><\/p>\n Gau<\/strong>: Our integration of BusinessWare Solutions worked out really well. It became one of the best acquisitions that we\u2019ve done, in a really difficult space. Another is our cross-selling initiative. One of our top strategies in fiscal year 2017 was to improve our crossover. It sounds really easy to cross-sell from the copier division to the IT division, but it\u2019s actually hard. We measure that by percent of customers who buy both categories from us. I think our success in the execution of our cross-selling strategy was another strong sales win for us.<\/p>\n Marco\u2019s Foundation Rebate Program has donated more than $1.6 million to nonprofit clients since its inception. Can you talk about the salutary effect it has on strengthening business ties while supporting the communities you serve?<\/strong><\/p>\n Gau<\/strong>: Being a good corporate citizen has always been important to us. People like doing business with a good corporate citizen and we\u2019re recognized as that across all our markets. If you were to ask the community, Marco would rank at the absolute top for corporate philanthropy. We pay our people while they\u2019re volunteering on the clock, and that\u2019s putting your money where your mouth is. So all things being equal, why not do business with a good corporate citizen? That\u2019s our philosophy.<\/p>\n Who do you see as your biggest competition, and how do you differentiate your company from them?<\/strong><\/p>\n Gau<\/strong>: It depends on the product category and who we\u2019re competing with. We recognize our customer is the IT decision maker, and we\u2019re an IT services company, so we get the upper hand almost always when competing with a copier dealer. Conversely, if we\u2019re competing for a managed IT services win, I think our biggest competitor is the customer\u2019s internal IT department, which generally doesn\u2019t like to outsource. Overall, I think our biggest competitor overall in the IT space is a company like CDW in most of our markets.<\/p>\n What are your goals for the next 12-18 months?<\/strong><\/p>\n Gau<\/strong>: We\u2019re seeking to do between eight and 12 acquisitions\u2014that\u2019s half of our growth strategy. We have a track record of growing about 20 percent compounded annually each year, so we\u2019d like to keep that around 20-25 percent. The cross-selling strategy is a huge opportunity for organic growth. Right now, only about 15 percent of our copier customers who are IT customers buy both categories from us. It\u2019s incredible how small that number really is. For us, continued execution on that cross-selling strategy is critical. We\u2019re continuing to work on the culture piece and not wreck the cultures of the firms we acquire. IKON is a prime example; they produced a lot of good people in our industry, but along the way, they lost sight of their culture. That organization doesn\u2019t exist today. We\u2019re very diligent about it and will continue to invest in resources to ensure we maintain a strong culture.<\/p>\n CEO Jeff Gau delivers a presentation during Marco\u2019s Technology Tradeshow<\/p><\/div>\n How do you view the industry changing in the future and what are you doing to adapt?<\/strong><\/p>\n Gau<\/strong>: Our model and our go-to-market strategy is strong. We really don\u2019t need any more products and services. One of the strengths of our business is we\u2019ve been able to adapt and execute. I\u2019m not looking for a new model. I just want to continue to accelerate the execution of our business plan. I feel good about that, as do our investors.<\/p>\n Outside of work, what do you do for fun?<\/strong><\/p>\n Gau<\/strong>: I like golfing, though I\u2019m not as good as I used to be. I enjoy traveling, and the industry provides a lot of good opportunities. I love spending time with my four grandchildren. We enjoy the normal Minnesota things; the state has about 10,000 lakes. We\u2019ve had a lake home here for 23 years, and it\u2019s my happy place.<\/p>\n","protected":false},"excerpt":{"rendered":" From the typewriter to the cloud, Marco has experienced the full range of technology waves throughout its 45-year history. The St. Cloud, MN-based dealership has grown to a dominant position within the office technology stratosphere, acquiring 37 dealerships since 2005 to push its annual revenue toward the $400-million plateau. You\u2019d be hard-pressed to find any Smith-Corona models on the Marconet.com website these days. The megadealer, backed by a nationwide workforce of 1,200, boasts facilities in nine states, but employs a national scope that serves in excess of 32,000 customers. It counts Konica Minolta, Sharp, HP, Canon and Toshiba as its primary copier and MFP providers, and relies on the tech offerings of giants such as Cisco, Microsoft and Tech Data. Renowned for its acquisition proclivities, Marco has positioned itself as an IT services provider, accounting for nearly half (45 percent) of its annual revenue. The M&A portion is complementary to Marco\u2019s organic growth, providing cross-selling opportunities for IT services to its new books of business. We spoke with Jeff Gau, CEO of Marco, along with Jennifer Mrozek, executive vice president of Business Development & Operations, to gain insight into the firm\u2019s strategic M&A path, its obsession with customer and employee satisfaction, and its partnership with private equity backer Norwest Equity Partners\u2014all of which have played a vital role in continuing Marco\u2019s heartland (and national) dominance. How was business in 2017? Gau: We continued to see nice double-digit growth at 16.5 percent, with profitability up over 20 percent. Managed IT services, recurring services and average top- and bottom-line growth all grew about 20 percent. We did three acquisitions last year, which is kind of low for us. It wasn\u2019t by design; it\u2019s just how they fell during the fiscal year. One of those was BusinessWare Solutions, the largest IT deal we\u2019ve done to date. It has integrated well for us and set the tone for a strong 2018. Our key strategy is we buy copier companies and layer IT services over it, so cross-selling is vital and has been a key driver for our organic growth. What does Marco pride itself on? Gau: I like the fact that we have a 10-year compounded annual growth rate of 20 percent. It\u2019s helpful in attracting good people and customers to our organization. Our track record is strong and validated. We\u2019re scorekeepers; we had our best client-satisfaction index since we first implemented it in 1994. We ask our customers 12 simple questions, one of which we call the ultimate question: If you had the opportunity, would you recommend Marco? Ninety-three percent of respondents said yes. We send out 500 surveys every month and have an 80 percent return rate. This validates our quality service. We\u2019ve also measured employee satisfaction for the past 30 years. This year we had about a 90 percent return rate, with more than 1,000 survey responses to 100 questions. This lets us know how we\u2019re performing, what we\u2019re doing well and the areas where there\u2019s room to improve. We can validate what other people only claim. We have a 93 percent recommend rate from customers, and an employee-satisfaction index of over 90 percent. In the last few years, Marco has captured some best-workplace awards, including ones for millennials and women, and in a national ranking of midsized companies, we came in at number 14. That validates our strong culture. We\u2019ve also done a good job transitioning our company to IT services. A lot of companies are talking about it when they should be doing it. I haven\u2019t seen a lot of strong players in this area, and few can boast that IT accounts for half of their revenue. How would you characterize the M&A landscape for the office technology industry? What are some of the variables and drivers behind the activity we\u2019ve witnessed during the past 24 months? Gau: We\u2019re seeing the highest multiples\u2014around five to seven\u2014paid to dealers since 2005, when we started making deals. Sizeable managed IT companies have higher values than copier companies; we\u2019ve seen strong multiples in that space. We\u2019ve also seen manufacturers diversify into managed services, medical devices or other categories. There are more buyers now. Private equity has entered the industry and has emerged as one of our biggest competitors for acquisitions. Mrozek: As soon as you provide a range of five to seven, everyone thinks they should be a seven, but it\u2019s not necessarily the case. There are a lot of components necessary for a dealer to fit into that range. We do look at quality of revenue streams, lengths of contractual relationships with customers, and whether a dealer bundles agreements or keeps service and hardware separate. We also look at whether they\u2019ve effectively expanded into managed IT services and the size of their offering. Those recurring revenue streams are important. Long-term customer relationships and a lack of customer concentration\u2014those are all things we\u2019re looking at with dealerships. We look at every opportunity and determine a value based on its operations. What is the ideal dealer profile for a potential Marco acquisition, in terms of geography, sales and service capabilities? Gau: There was a time when we sought smaller dealers in contiguous markets. Now, with the backing of our private equity partners, we\u2019ve integrated 37 acquisitions. Writing the check sometimes is the easy part; integration is the tough part, but we\u2019ve gotten really good at it. From a geographic expansion standpoint, we see the U.S. as our market. I don\u2019t know that we need to be in Manhattan anytime soon, but we\u2019d like to be in the state of New York, in the right markets. We have a lot of flexibility from a geography standpoint, and we like dealers with multiple locations. Once we get that initial movement into a state, like we did with Michigan, we can then do multiple acquisitions. That includes IT companies. We focus on copier dealers because that model offers contracted services, and we can layer our IT services over that marketplace. We\u2019ve done about a dozen IT […]<\/p>\n","protected":false},"author":166,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1643],"tags":[],"_links":{"self":[{"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/posts\/30156"}],"collection":[{"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/users\/166"}],"replies":[{"embeddable":true,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/comments?post=30156"}],"version-history":[{"count":3,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/posts\/30156\/revisions"}],"predecessor-version":[{"id":30167,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/posts\/30156\/revisions\/30167"}],"wp:attachment":[{"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/media?parent=30156"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/categories?post=30156"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/tags?post=30156"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}![\"\"](\"http:\/\/www.enxmag.com\/twii\/wp-content\/uploads\/2018\/07\/Client-Services-Center.jpg\")
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