Sooner or later, the chasing of revenue through acquisition would prove unworthily for the Document Imaging Channel's investors. Unfortunately, this pandemic is highlighting faster what many were hoping wouldn't happen so quickly.
The realization from the end-users themselves that much of the oversold print equipment is not needed. Another realization is that transitioning a print/copier business into a Managed IT Services business, which sells and services print equipment, seems implausible by the lack of adaptation.
Since the start of this pandemic, more and more of the investment dollars are going outside the print channel.
Is Private Equity Giving up on Print?
Since the beginning of 2020, the IT services industry has seen over 300 acquisitions. The Imaging Channel, on the other hand, only needs one hand to count its M&A activity over this same period.
In one publication I read it described over 30 Private Equity groups investing in Managed Service Providers. Even our friends at Oval Partners invested last week in a roll-up of four IT Service companies called "New Charter Technologies." See the below link
As well, Manufactures as Konica and Ricoh are way more focused on Managed IT and IT Security as Acquisition strategies. These two organizations must be watching "The End Of The Day With Ray!" For three years, I have cautioned on the coming bubble burst as mega dealers insisted on buying up more of the same declining revenue without a strategy to eliminate the over cost to their go-to-market strategy and make the serious adjustments needed to align with the market's realities of the deliverable.
What's the endgame for the current roll-ups? I guess by the start of 2021; some will answer that question.
In my vision, I see some more asset sales as some escape doom and retire; I see the investments in the mega dealers shift to the end game. Maybe Staples doubles down and grabs one or even two mega dealers at discounted prices. Perhaps the private equity groups decide on pulling cash out through a leveraged lending strategy.
One thing has to be evident to all, continuing in the ways of the pre-virus world will not withstand the pressures in the realities of print equipment and its services.
It seems as Private Equity is looking outside the Document Imaging Channel, and I predict there won't be near the excitement as in the past in chasing declining revenues. Investment bubbles burst once the realization of the perceived glories is exposed as an actual fantasy. The document Imaging Channel has had its perceived treasures revealed. Growth through acquisition in a declining deliverable without diversification or significant cost reductions to the deliverable was and is pure fantasy.
Maybe it's time to take a note from our friends at Oval Partners, Ricoh, and Konica and start investing in IT Services companies.
I am starting to form an opinion that Managed IT Services and Managed Print Services are so far apart in their deliverables. That putting these organizations together isn't realistic and honestly is probably the reason for the decade of failures in the many who attempted it.
Maybe it is time for dealers to own two separate organizations, one of Managed Print and one of Managed IT or IT Security Services.
Here's a thought, If a mega car dealer went out and bought a chain of gas stations, they would surely not make it one company. Even though all the cars they sell use gas! Managed Print and Managed IT are too far apart to bring together. Especially from a print driven agenda hasn't the last decade proved this?
After all the failed attempts for over a decade, maybe Print and IT Services were never supposed to be together. Perhaps the private equity is ahead of the industry on this thinking. Oval Partners did not buy the four IT company roll-up through Flex; they kept it separate, and I believe they were correct in that decision. Time will tell, but the more I think about it, the more it makes sense to separate the deliverables.
What if dealers focused on cutting all costs possible regarding their print services company, realigning to sell and deliver print equipment to the marketplace's realities, stopped overselling A3, Built digital customer engagement platforms (E-Commerce), stopped chasing the fantasy of production print without a business plan and understanding of its potential and concentrated on growing their print business through a lowering delivery cost thereby increasing margin.
While at the same time, they owned a separate business engaged in Managed IT Services without the noise of Managed Print and focused on growing a profitable IT Services company. I my thinking, there are thousands of Managed IT Services companies doing very well without selling print. It just might be time to re-evaluate the last decades' failures honestly.
Maybe the dealers need a different way to think about the future. That future might be better with two companies doing what they do best instead of one company floundering in mediocrity as its best. I look forward to exploring this strategy more.
"Status Quo is the killer of all that will be invented."
CEO/Founder TEASRA,The Innovation Channel and Host of The End of The Day With Ray! https://www.endofthedaywithray.com/
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