What Will Staples Do With The New DEX Acquisition?

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What Will Staples Do
With The New DEX Acquisition?

Staples’ move for managed print firm DEX Imaging is intriguing for both office technology and office supplies resellers.

By Andy Braithwaite. 

Our colleagues at The Imaging Channel held a very well-attended webinar last week on Staples’ acquisition of DEX and it was interesting to hear the thoughts on the deal and insights from the assembled panel of imaging supplies, copier/printer and managed print services (MPS) experts.

 

One speaker called the transaction a “match made in heaven” and there was consensus that Staples’ move was a validation of the white-glove, value-add services model provided by office technology (OT) dealers, and of the potential that Staples’ owner Sycamore Partners sees in the MPS space.

 

In fact, there was an interesting observation on the link between Sycamore co-founder Stefan Kaluzny and the imaging channel. Kaluzny was a former partner at Golden Gate Capital and was still at the private equity firm when it acquired Clover Technologies in 2010.

 

Clover then went on something of a spending spree starting with West Point Products, and there is an expectation that a Sycamore/Staples-backed DEX will look at increasing its national footprint by acquiring other MPS-focused dealers.

 

Staples did not say how much it acquired DEX for, but Bloomberg has reported that it took out a $350 million term loan to finance the deal. What we don’t know is how much of that was sunk into the actual acquisition itself and what, if anything, is left over as a ‘war chest’ to fund further M&A activity.

 

It’s difficult to second-guess Sycamore’s end-game, but it has just backed two significant acquisitions in the B2B segment – DEX and the $1 billion move for OP wholesaler Essendant – adding somewhere in the region of $5.2 billion of top-line revenue and (probably) upwards of $100 million in annual EBITDA.

 

One thing these deals have in common is a focus on the SMB customer with resellers that are customer-service oriented. Office Depot is also going down the services route with its CompuCom acquisition as both resellers attempt to move away from commoditised, transactional selling into higher-margin, value-added and high-touch (Amazon-proof?) levels of customer engagement.

 

Time will tell which one has made the smartest move(s), but CompuCom’s 2018 operating profit of just $17 million on sales of almost $1.1 billion was not a great start – but it’s still early days.

 

One area that Office Depot says it is already seeing some success with is cross-selling between legacy CompuCom and Office Depot customers. There would appear to be similar potential between Staples and DEX; as one successful office products dealer told OPI, it would make sense for a DEX subject-matter expert to call on Staples’ office supplies customers and this could even be a lever in making Staples a better overall service provider for the mid-market, something that, historically, it has struggled to achieve.

 

The Staples national distribution footprint could also be an important factor in the rapid expansion of the DEX-like services, it was pointed out to OPI, without necessarily having to go out and acquire existing dealerships.

 

And why not have DEX service its own customers’ office supplies needs through Staples in a one-stop shop supplies and document services bundle? That could accelerate further channel blurring and more cross-fertilisation between OT and office products resellers and the growth of more ‘hybrid’ dealers. That concept is not new; in fact, here is a link to a video interview with Doug Nash, then of United Stationers, talking about the wholesaler’s (at the time) new MPS offering for dealers. That interview was made back in 2010! Nevertheless, a of lot of what Nash said then still sounds relevant today.

 

United Stationers, of course, is now Essendant, which has just been acquired by Sycamore. That throws other possibilities into the mix.

 

According to Staples CEO Sandy Douglas and Essendant President Harry Dochelli, the two organisations will work as “partners” while adhering to the competitive requirements of the FTC-monitored firewall.

 

Does that mean that Essendant dealers could benefit from Staples’ ownership of DEX? Could Essendant-aligned dealers offer DEX MPS services to their customers if they chose to do that? Or would that breach the firewall regulations?

 

If the latter, how will Essendant (and, for that matter, SP Richards) respond as its dealers turn to their first-call wholesaler for guidance and, potentially, access to resources to compete more effectively in the managed print space?

 

There was some speculation on The Imaging Channel webinar as to whether Staples would leverage its retail footprint to help DEX expand across the US. Given what we know about Staples’ divergent strategies for B2B and retail, that would seem unlikely and indications are that the DEX acquisition is a pure B2B play and independent from the store network. That differs from Office Depot’s omnichannel strategy where the store is an important hub in the cross-selling of CompuCom and Office Depot services via the Workonomy brand.

 

A current buzzword in the office technology world is ‘convergence’. So far that has been mainly used to refer to the coming together of managed print and IT services providers. Now it’s perhaps time to add business products into the mix if we are truly going to see the development of hybrid services and products resellers.

 

Staples is coming at it from the print services side, and Office Depot from the IT services side, which will impact both the traditional MPS and IT dealer channels (or it will if the two big-boxes execute properly). That lays the foundations for some interesting industry dynamics over the coming months and years, but those independent resellers that are really committed to remaining independent, may find like-minded dealers with strong customer relationships – whether they operate in the IT, MPS or business products segments – to be their strongest allies and partners.

https://www.opi.net/news/where-will-staples-inc-go-with-dex-acquisition/

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March 7, 2019 at 11:35 AM