{"id":35380,"date":"2019-07-29T01:38:41","date_gmt":"2019-07-29T08:38:41","guid":{"rendered":"https:\/\/www.enxmag.com\/twii\/?p=35380"},"modified":"2019-08-01T09:38:56","modified_gmt":"2019-08-01T16:38:56","slug":"uptick-in-ma-deals-hasnt-satisfied-insatiable-appetite-for-buyers-sellers","status":"publish","type":"post","link":"https:\/\/www.enxmag.com\/twii\/state-of-the-industry\/2019\/07\/uptick-in-ma-deals-hasnt-satisfied-insatiable-appetite-for-buyers-sellers\/","title":{"rendered":"Uptick in M&A Deals Hasn\u2019t Satisfied Insatiable Appetite for Buyers, Sellers"},"content":{"rendered":"\n
My, but what a difference a couple of years can make.<\/p>\n\n\n\n
Two years ago, we featured a number of major office technology dealership players in the merger and acquisition (M&A) space, and suffice it to say that the field of competitors has grown significantly in just the past 24 months. Even the office products set has dipped its toe in the waters with the announcement that Staples obtained DEX Imaging which, coupled with the murmurings that DEX is hiring personnel across the country, leads one to believe that it will seek to provide the service component to customers on a much wider scale.<\/p>\n\n\n\n
The transactions are certainly not relegated to dealers adding dealers. At press time, Ricoh turned a few heads with the announcement it had acquired DocuWare, a provider of cloud and on-premises document management and workflow automation software. Sharp, Konica Minolta and Xerox are among the manufacturers that have expanded their direct operations, while EFI was sold to a Siris Capital Group affiliate for $1.7 billion.<\/p>\n\n\n\n
Late last year, ECi Software added device management and assessment solutions specialist PrintFleet, print management solutions provider Print Audit, sales automation software specialist Office Document Consulting and Vineyardsoft Corporation, a leader in business activity monitoring software. CET Group obtained Q2 LLC in a deal among compatible products manufacturers. Even industry consultants got into the act, when BEI Services and Business Systems Consulting joined forces (check out our profile story on page 40) this past spring.<\/p>\n\n\n\n
Favorable Conditions<\/h3>\n\n\n\n
This is just a small sample size from the bevy of deals that point to several talking points from the last time we explored the subject in these pages. For one, the industry remains highly fragmented. Players from a number of spaces (including venture capital and other subsectors) recognize the vitality of our industry for investment purposes. Sellers realize the economic conditions (economy, political culture and buyer access to capital) remain fertile. Finally, there\u2019s the push toward expanding into managed services and ancillary offerings to fortify recurring revenue. Entities lacking the wherewithal to make critical investments are seeing M&A as the road to aligning with partners who can better provide that wider portfolio of products and services.<\/p>\n\n\n\n
Dan Ruhl, Flex Technology Group<\/figcaption><\/figure><\/div>\n\n\n\n
So, what have the past two years taught us, from a dealer perspective? Has the influx of transactions created over-inflated expectations among sellers? For that, we turn to our panel of M&A-active dealers to get their take on how the transactional landscape has evolved during that span.<\/p>\n\n\n\n
Dan Ruhl, a principal at Oval Partners (the private equity arm behind Flex Technology Group), notes that the uptick in deals during the past two years has resonated within the dealer channel, leading them to believe that now is the optimal time\u2014given business conditions\u2014to move forward with a transaction. In fact, he feels those independent dealers who haven\u2019t explored selling options in the past 24 months are in the minority.<\/p>\n\n\n\n
I do think expectations are a bit higher today than they were a few years ago<\/p>Dan Ruhl, Flex Technology Group<\/cite><\/blockquote>\n\n\n\n
\u201cWith the amount of activity and buyers who are out there, valuations have increased,\u201d he said. \u201cI don\u2019t think it\u2019s resulted in unrealistic expectations, in most cases. There\u2019s always the business owner who says he heard this transaction happened at a certain multiple of revenue and he thinks that\u2019s what his company is worth. But most business owners have a pretty good feel for how valuations work in this industry. I do think expectations are a bit higher today than they were a few years ago.\u201d<\/p>\n\n\n\n
Feeling the Pinch<\/h3>\n\n\n\n
RJ Young has methodically grown its presence within the Southeast. In fact, the Nashville, Tennessee-based firm is currently putting the wraps on its seventh deal in the past three years, according to Chip Crunk, president and CEO.<\/p>\n\n\n\n
The move toward more high-tech offerings beyond the MFP box has stirred the belief in many suitors that now is the time to seek a potential M&A partner. \u201cA lot of the smaller dealers are feeling the squeeze,\u201d he said. \u201cIt\u2019s making it more difficult for them to compete, and we\u2019re seeing the increased interest. In years past, I needed to market myself out to find acquisitions. Now, they\u2019re coming to us, because we\u2019re one of the few companies out there still trying to grow their business.\u201d<\/p>\n\n\n\n
As a regional player, Crunk notes that there are few alternatives for the smaller dealers who are seeking to partner. \u201cIf you look at the big venture capital-backed dealers, they\u2019re looking at companies in the $50 million to $100 million range, maybe a little less on the low end,\u201d he said. \u201cWhen they expand into new territories, they\u2019re looking for core companies. We\u2019re looking at roll-ups to increase our existing base.\u201d<\/p>\n\n\n\n
A lot of the smaller dealers are feeling the squeeze. It\u2019s making it more difficult for them to compete, and we\u2019re seeing the increased interest.<\/p>Chip Crunk, RJ Young<\/cite><\/blockquote>\n\n\n\n
One of the more active players in the market is St. Cloud, Minnesota-based Marco, which has witnessed an uptick in the number of IT firms it has acquired. Jeff Gau, CEO of Marco, has noticed a pair of trends in deals during the past 24 months: rebounds from unfinished deals with other suitors, and dealers opting to stand pat for the time being.<\/p>\n\n\n\n
Deal or No Deal<\/h3>\n\n\n\n
\u201cWhat I\u2019ve found in the last couple years is that if I\u2019m losing out on a deal, it\u2019s strictly to a no-decision where (the seller) didn\u2019t do anything,\u201d he said. \u201cThey might have a price in their head, and if we can\u2019t hit that price, they think they should hold out for a while.\u201d<\/p>\n\n\n\n
Jeff Gau, Marco<\/figcaption><\/figure><\/div>\n\n\n\n
An even more prevalent development is the growth in dealers who are testing the waters with multiple suitors. On several occasions, a would-be seller backed off from Marco because it had found a \u201cbetter deal\u201d with another dealership. Invariably, the seller would return to Gau because the higher offer didn\u2019t result in a closed deal.<\/p>\n\n\n\n
This development is somewhat borne out of inflated expectations, and underscores the importance of working through the due diligence process. \u201cA company is only worth what it\u2019s worth, and as professional acquirers, we have a diligence process,\u201d Gau noted. \u201cThe validation process sometimes can bring a reality to what a company is really worth. I think the reality is that good, high-performing companies that are well diversified with a lot of fixed contracts, fully bundled, can bring more value than maybe a company that has less contracts, less diversification, less profit and maybe one or two good customers that skew the numbers. That adds some risk.\u201d<\/p>\n\n\n\n
The validation process sometimes can bring a reality to what a company is really worth. <\/p>Jeff Gau, Marco<\/cite><\/blockquote>\n\n\n\n
Dan Cooper, Novatech<\/figcaption><\/figure><\/div>\n\n\n\n
Novatech, which is headquartered in Nashville, Tennessee, has built a strong base within the Southeast, but is also eyeing expansion opportunities in other regions. Dan Cooper, the firm\u2019s newly minted president and CEO following Darren Metz\u2019s transition to executive chairman, brought his 30-plus years of industry experience to expand upon the company\u2019s growth platform.<\/p>\n\n\n\n
Cooper notes that the industry has been consolidating at a variable pace for as long as he\u2019s been in the business, and valuations have changed based on the number of organizations in buying mode. \u201cToday, we see renewed energy and opportunity in the M&A landscape as the baby boomers and Gen X leaders seek to retire,\u201d he said. \u201cBut as they do, there\u2019s greater concern for their company\u2019s future and what happens after the sale.\u201d<\/p>\n\n\n\n
Today, we see renewed energy and opportunity in the M&A landscape as the baby boomers and Gen X leaders seek to retire.<\/p>Dan Cooper, Novatech<\/cite><\/blockquote>\n\n\n\n
One dealership that is highly active in the M&A theater at the moment is UBEO Business Services, with seven deals completed in the past year, including its watershed partnership with Ray Morgan Company. But 24 months ago, the dealer was not widely known outside of its home state of Texas. That all changed in April of 2018, when UBEO joined forces with Sentinel Capital Partners, triggering its current M&A tear.<\/p>\n\n\n\n
Integration Strategy<\/h3>\n\n\n\n
Jim Sheffield, the company\u2019s president and CEO, freely admits that he is surprised as to the volume of activity and interest he has seen in such a short period. \u201cThere\u2019s a sense right now with small to medium dealers that this is the time where you need to pick your team,\u201d he said. \u201cThis business has headwinds, and this is the time when you need to have power on your side. That\u2019s part of the reason we did this, and dealers are attracted to that power. Owners are interested in hearing what we\u2019re doing.\u201d<\/p>\n\n\n\n
Jim Sheffield, UBEO Business Services<\/figcaption><\/figure><\/div>\n\n\n\n
While most of the other major M&A players have long since dealt with integration issues due to their wealth of experience in scaling, Sheffield confesses to a degree of \u201cincreased metabolism\u201d in acquiring seven dealers, effectively tripling UBEO in size. The dealership is taking a measured approach to integrating new acquisitions, and recently implemented some best practices and made several strategic hires. The billing department has worked aggressively to bring all Texas billing under one roof, while customer bills in the western region will continue to be processed locally. <\/p>\n\n\n\n
Making the process as opaque to the customer as possible is a top priority. \u201cWe don\u2019t want the customer to experience any disruption,\u201d he said. \u201cThe expertise of our people during the integration process has really helped to avoid fumbling the football and disrupting the customer. That goes back to having quality people.\u201d <\/p>\n\n\n\n
This business has headwinds, and this is the time when you need to have power on your side.<\/p>Jim Sheffield, UBEO Business Services<\/cite><\/blockquote>\n","protected":false},"excerpt":{"rendered":"
My, but what a difference a couple of years can make. Two years ago, we featured a number of major office technology dealership players in the merger and acquisition (M&A) space, and suffice it to say that the field of competitors has grown significantly in just the past 24 months. Even the office products set has dipped its toe in the waters with the announcement that Staples obtained DEX Imaging which, coupled with the murmurings that DEX is hiring personnel across the country, leads one to believe that it will seek to provide the service component to customers on a much wider scale. The transactions are certainly not relegated to dealers adding dealers. At press time, Ricoh turned a few heads with the announcement it had acquired DocuWare, a provider of cloud and on-premises document management and workflow automation software. Sharp, Konica Minolta and Xerox are among the manufacturers that have expanded their direct operations, while EFI was sold to a Siris Capital Group affiliate for $1.7 billion. Late last year, ECi Software added device management and assessment solutions specialist PrintFleet, print management solutions provider Print Audit, sales automation software specialist Office Document Consulting and Vineyardsoft Corporation, a leader in business activity monitoring software. CET Group obtained Q2 LLC in a deal among compatible products manufacturers. Even industry consultants got into the act, when BEI Services and Business Systems Consulting joined forces (check out our profile story on page 40) this past spring. Favorable Conditions This is just a small sample size from the bevy of deals that point to several talking points from the last time we explored the subject in these pages. For one, the industry remains highly fragmented. Players from a number of spaces (including venture capital and other subsectors) recognize the vitality of our industry for investment purposes. Sellers realize the economic conditions (economy, political culture and buyer access to capital) remain fertile. Finally, there\u2019s the push toward expanding into managed services and ancillary offerings to fortify recurring revenue. Entities lacking the wherewithal to make critical investments are seeing M&A as the road to aligning with partners who can better provide that wider portfolio of products and services. So, what have the past two years taught us, from a dealer perspective? Has the influx of transactions created over-inflated expectations among sellers? For that, we turn to our panel of M&A-active dealers to get their take on how the transactional landscape has evolved during that span. Dan Ruhl, a principal at Oval Partners (the private equity arm behind Flex Technology Group), notes that the uptick in deals during the past two years has resonated within the dealer channel, leading them to believe that now is the optimal time\u2014given business conditions\u2014to move forward with a transaction. In fact, he feels those independent dealers who haven\u2019t explored selling options in the past 24 months are in the minority. I do think expectations are a bit higher today than they were a few years ago Dan Ruhl, Flex Technology Group \u201cWith the amount of activity and buyers who are out there, valuations have increased,\u201d he said. \u201cI don\u2019t think it\u2019s resulted in unrealistic expectations, in most cases. There\u2019s always the business owner who says he heard this transaction happened at a certain multiple of revenue and he thinks that\u2019s what his company is worth. But most business owners have a pretty good feel for how valuations work in this industry. I do think expectations are a bit higher today than they were a few years ago.\u201d Feeling the Pinch RJ Young has methodically grown its presence within the Southeast. In fact, the Nashville, Tennessee-based firm is currently putting the wraps on its seventh deal in the past three years, according to Chip Crunk, president and CEO. The move toward more high-tech offerings beyond the MFP box has stirred the belief in many suitors that now is the time to seek a potential M&A partner. \u201cA lot of the smaller dealers are feeling the squeeze,\u201d he said. \u201cIt\u2019s making it more difficult for them to compete, and we\u2019re seeing the increased interest. In years past, I needed to market myself out to find acquisitions. Now, they\u2019re coming to us, because we\u2019re one of the few companies out there still trying to grow their business.\u201d As a regional player, Crunk notes that there are few alternatives for the smaller dealers who are seeking to partner. \u201cIf you look at the big venture capital-backed dealers, they\u2019re looking at companies in the $50 million to $100 million range, maybe a little less on the low end,\u201d he said. \u201cWhen they expand into new territories, they\u2019re looking for core companies. We\u2019re looking at roll-ups to increase our existing base.\u201d A lot of the smaller dealers are feeling the squeeze. It\u2019s making it more difficult for them to compete, and we\u2019re seeing the increased interest. Chip Crunk, RJ Young One of the more active players in the market is St. Cloud, Minnesota-based Marco, which has witnessed an uptick in the number of IT firms it has acquired. Jeff Gau, CEO of Marco, has noticed a pair of trends in deals during the past 24 months: rebounds from unfinished deals with other suitors, and dealers opting to stand pat for the time being. Deal or No Deal \u201cWhat I\u2019ve found in the last couple years is that if I\u2019m losing out on a deal, it\u2019s strictly to a no-decision where (the seller) didn\u2019t do anything,\u201d he said. \u201cThey might have a price in their head, and if we can\u2019t hit that price, they think they should hold out for a while.\u201d An even more prevalent development is the growth in dealers who are testing the waters with multiple suitors. On several occasions, a would-be seller backed off from Marco because it had found a \u201cbetter deal\u201d with another dealership. Invariably, the seller would return to Gau because the higher offer didn\u2019t result in a closed deal. This development is somewhat borne out of inflated expectations, and underscores […]<\/p>\n","protected":false},"author":166,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1641],"tags":[],"_links":{"self":[{"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/posts\/35380"}],"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=35380"}],"version-history":[{"count":12,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/posts\/35380\/revisions"}],"predecessor-version":[{"id":35601,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/posts\/35380\/revisions\/35601"}],"wp:attachment":[{"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/media?parent=35380"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/categories?post=35380"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.enxmag.com\/twii\/wp-json\/wp\/v2\/tags?post=35380"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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