- This topic has 0 replies, 1 voice, and was last updated 6 years, 9 months ago by Anonymous.
Not just a wild spending spree: The Thinking Behind Lexmark’s Sudden Surge in Acquisitions
By Dan Ovsey
It’s been about five years since Lexmark — the printing titan that made a name for itself during the consumer and commercial printing boom of the late-1990s — recognized it would have to alter its business strategy to survive the rapid shift toward digital storage of photos and documents. That strategy involved the development and implementation of software to assist large enterprises in structuring and managing otherwise unstructured, high-volume content. To that end, Lexmark has been on a spending spree, acquiring 10 companies, starting with the most crucial acquisition of Perceptive Software in May 2010 and another nine over the past three years. While the price tags for the purchased companies weren’t all made public, eight of the 10 cost Lexmark an estimated $681-million. The transition to a new business model hasn’t been easy, though. In July of 2010 the company’s stock sank to a 15-year low, coinciding with a significant drop in earnings. Today, however, things are looking up. In response to the recent acquisitions, analysts and investors have rewarded the business-solutions provider with greater confidence in its business strategy, helping to return its stock value to a three-year high. Todd Hamblin, president of Lexmark Canada, recently spoke with the Financial Post’s Dan Ovsey about the thinking behind the acquisitions, the criteria used to evaluate prospective purchases and the challenges along the way. Following is an edited transcript of their conversation.
Q: You’ve been on quite the spending spree this past year. Why the sudden flurry of acquisition activity?
A: There was a master plan, probably about four or five years ago at its genesis, and it started picking up speed when we made our first acquisition of Perceptive Software in May of 2010, which is to this day our largest acquisition. They continue to be our parent on the software side and we’ve continued to add to that. Why it’s accelerated is we continue to see opportunities as we work with our customers to add value to their businesses, and that means sometimes a technology play. Some of our acquisitions have come to expand our technology portfolio; others have been more for geographic expansion. For example, we bought Saperion, a German-based company that has a lot of German multinational companies (as clients) and that helps our base in Europe.
They’re looking at the companies to see not only that we are acquiring technology and resources, but also to see if that is going to fit into what we already do
Q: Things have turned around very quickly for Lexmark since last summer. Analysts and investors seem to have much more confidence in your business strategy. To what do you attribute this?
A: These are smart individuals. They see we’re investing lots of money and they’re looking at the companies to see not only that we are acquiring technology and resources, but also to see if that is going to fit into what we already do. It took some time for them to grow comfortable with our acquisition strategy. As we’ve continued to show growth — and we have shown steady growth, in fact our most recent quarterly report showed 38% growth in our Perceptive Software division — and expansion of customers, and an integration of the acquired companies, it’s made them more comfortable that we’re not just on an acquisition spree, but that this is very calculated; these are great fits for our overall strategy, they then said this bodes well for the future. The capabilities we’ve added are in high-growth markets (all 10 or 15%-plus growth markets in the coming 10-year period). When they see that, they see Lexmark is well positioned in growth industries.
Q: How do you evaluate which software developers you’re going to acquire?
A: We look for strategic fit. We want to make sure the technology and the people (anyone who comes along through the acquisition) fit into the culture and the technology that’s already part of Lexmark.
We have a DNA that’s centered on creating customers for life. If we were to look at two different companies and we found that their technology was easy to use, easy to integrate and that they were a good fit for the way our technology works, but one culture was not as customer-oriented as the other, well that’s an easy choice for us because we want to find a technology fit and an easy-to-integrate technology so that it’s not real intense on professional services, and then the ability for the culture to fit well to acquire customers and retain them (we have the highest customer retention rate in the industry). When we first looked at Perceptive, we wanted to make sure that their culture of really having very satisfied, loyal customers fit in with Lexmark. There are a lot of companies that provide Enterprise Content Management (ECM), but not all the cultures were a great fit for ours. Theirs has been a great fit.
Q: What if a company you’re considering acquiring can be more seamlessly integrated than another but doesn’t have as great of a fit with your culture? Which takes precedence: ease of integration or cultural fit?
A: It’s a good question, but I don’t think I could tell you which way we would automatically lean. We’re looking for a company and a technology that adds to our portfolio in a meaningful way. If there’s a great technology fit and a culture fit, then we’re all over it. If something’s missing then we probably have a longer due-diligence period. Sometimes we’re looking to develop that technology from within. We now have these 10 acquisitions as well as a big base of business we’ve brought with us to begin with — a lot of smart engineers and great technologies — so some of it is homegrown as well.
Q: When you acquire a company do you tend to retain its brand or integrate into the parent company’s brand?
A: We intend to grow the Perceptive Software brand, but right now all of the other brands are coming into the Lexmark portfolio. There will be a two-brand strategy. Lexmark is the parent and still the printing portion of the company, and Perceptive Software as this new content management, process management software division.
Q: Why did you choose to retain the Perceptive brand but incorporate all subsequent acquisitions into Perceptive as a parent?
A: We’re integrating all the software acquisitions into the Perceptive brand because there’s some equity in the market for Perceptive and we want to make sure we’re leveraging and growing that equity.
It’s meshing the experience that Lexmark has developed over 20+ years and merging that with the subject-matter expertise in the acquisition
Q: So the others just don’t have as much brand equity.
A: They’re typically smaller and more regionally based. Maybe they’re stronger in Germany or Holland or the U.S., but they’re not an international brand. We’ve been focused in the past few years on expanding the Perceptive brand internationally, and we feel it’s important to leverage that.
Q: In retrospect, what has been the biggest challenge you’ve faced with the acquisition or integration process over the past year or so?
A: Let me start with a few things that we’ve found to be great benefits. The cultural fits, while not perfect, have been good. The general DNA of pleasing customers, solving their problems, staying with them through thick and thin and developing partnerships, this Lexmark DNA has been the DNA of all the companies. So that part has been fairly easy.
The technology itself, we’ve continued to look at ways we can merge these technologies so that they are combined solutions (not separate), and that takes a little bit more time as we understand the code and strengths and weaknesses of the various offerings.
I think the thing we’re still working on is this global expansion. How do you take a brand or technology that’s been strong in one part of the world and very vertically focused and get that to move to another continent, and have the owners who have only ever known their world to help us grow in another part of the world? It’s an exciting opportunity, but certainly a challenge as well.
Q: What’s your approach to overcoming that challenge?
A: We have some very experienced individuals at Lexmark who have grown businesses around the world, managed businesses around the world. Leveraging that experience and talent was job number one. The second was making sure the brains behind these technologies — that we help their minds expand and see the nuances as we go into a new market so that they’re open to alterations in the technologies or maybe even the approach. Perhaps they’ve been used to selling in a certain way, and that’s not yet a way that another continent is used to acquiring that technology. So, there’s change sometimes even in the business model, and it’s getting them to understand. It’s meshing the experience that Lexmark has developed over 20+ years and merging that with the subject-matter expertise in the acquisition.
Q: You tend to set your sights on larger public-sector targets — government agencies, higher education, health care — that tend to have volatile procurement strategies. Why have you chosen these as targets?
A: We have a long track record in most parts of the world being a great print provider to them. We know these entities. We know some of their pain points and we know the technology we’ve acquired and are growing can solve these pain points we’ve observed. So, we feel well positioned when they’re ready, but we’re not putting all our eggs in that basket. It’s certainly a big part of the opportunity in the world, but an even larger part is the commercial sector where we find ourselves much stronger. We’re very strong in banking and retail, and we’re growing quite rapidly in manufacturing.
As we’ve continued to show growth… and expansion of customers, and an integration of the acquired companies, it’s made [analysts and investors] more comfortable that we’re not just on an acquisition spree, but that this is very calculated; these are great fits for our overall strategy, they then said this bodes well for the future," says Lexmark Canada President Todd Hamblin.
Author2013-11-14 at 12:22:00 pm
- You must be logged in to reply to this topic.