By Allison Correia and Brendan Morse, InfoTrends’ Senior Research Analysts for Solutions and Services
Back in October 2015, Lexmark announced plans to explore strategic alternatives for its business, which many took to mean they were exploring a major move like splitting the company in separate two entities, selling a significant portion of the company, or to sell the entire company as-is. Six months later, Lexmark announced on April 19, 2016, that it entered into a definitive merger agreement with a consortium of investors led by Apex Technology Co., Ltd. (Apex) and PAG Asia Capital (PAG), under which Lexmark will be acquired for $40.50 per share, representing a 30% premium to the price back in October (the day before Lexmark announced they were exploring strategic alternatives). This makes for an all-cash transaction value of approximately $3.6 billion, net of cash. Lexmark’s corporate headquarters will remain in Lexington, KY, and Paul Rooke, chairman and CEO of Lexmark is expected to continue to lead Lexmark after the acquisition is finalized. Lexmark’s two business groups, Imaging Solutions and Services and Enterprise Software, as well as the company’s regional and country operations, are expected to continue unaffected.
Lexmark has made many significant acquisitions of their own over the past several years, most notably Perceptive in 2010 which signaled a major move into enterprise software, and most recently the acquisition of Kofax Ltd. back in March of 2015. In reality, the $1 billion Kofax acquisition plainly seems to have left shareholders unsatisfied. To make such an acquisition, and then explore strategic alternatives, simply requires the basic question why so soon? Paul Rooke’s answer is [the board] “believes this is in the best interest of [the] shareholders following an exhaustive strategic alternatives review process to maximize value. The transaction will benefit [their] customers and provide new opportunities for [their] employees.”
Rooke stated that Lexmark will be able to use the relationship and resources to “invest in and grow the business to more fully penetrate the Asia Pacific market for hardware, software and managed print services.” This sentiment and strategy was echoed by Weijian Shan, group chairman and CEO of PAG. However, the announcement does not make clear exactly how the private equity and Chinese supplies company can accomplish this tall order. Thus, our analysts are considering large, fundamental questions including:
● What are the benefits for customers and new opportunities for employees?
● What value does the Lexmark acquisition provide to APEX?
● Lexmark vs APEX/Ninestar have had a very contentious history, with Lexmark at issue with APEX/Ninestar over patent infringement. How will this history be overcome?
● What does it mean for price and margins in the office technology area?
● Ninestar, which owns 70% of APEX, are also Pantum. How will the two printer brands play out?
● What implications does another Chinese investment into an American technology company mean?
● How will this allow Lexmark to expand into APAC and LA?
● What channels do APEX/Ninestar offer to those markets?
● Legend Capital owns 30% of Lenovo. Does this mean that Lenovo will sell printers?
● Will they manufacture devices more cheaply exclusively in China?
● This appears to be a hardware/supplies play. What about the solutions side? Can APEX drive solutions or MPS in Asia?
There will be reverberation in the wider office document technology industry from this deal, especially if Lexmark and Apex attempt to implement the strategy they have laid out. We are probing the implications of this acquisition to the overall market, as well as, what strategies Apex will take moving forward to transform the business and leverage the new technologies gained through Lexmark. InfoTrends will be publishing a comprehensive analysis piece further exploring these questions shortly, so be on the lookout. If you would like to see the analysis piece or want any more information on this topic, please email Scott Phinney.
About APEX
Apex Technology Co., Ltd. designs, manufactures, and markets inkjet and laser cartridge components for remanufacturers and distributors and is the largest manufacturer and solution provider for the global aftermarket imaging supplies channel. The company was founded in 2004 and is headquartered in Zhuhai, Guangdong, China.
