“Everything under heaven is in utter chaos; the situation is excellent.” – Mao Zedong
If Jim Cerkleski assembled an old-fashioned scrapbook that covered the gamut of everything that transpired during 2019 with Clover Imaging Group (Clover Imaging) and its former parent company, 4L Technologies, he might have been tempted to toss it in the garbage before mid-year. After all, 4L was buckling with a debt load of approximately $640 million, and rumors circulated that the company had few alternatives, would be declaring bankruptcy and perhaps closing its doors.
But Cerkleski, the executive chairman of Clover Imaging, knew his company didn’t ascend to the elite level of printing cartridge remanufacturers by going down without a fight. Clover Imaging was blessed with good bones—a quality managed print program, not to mention a hard-charging division in Amplify that helps partners develop effective websites and drive inbound marketing—to complement its reman cartridge platform. Perhaps most importantly, Clover Imaging lays claim to a workforce that was fully invested in what the company was looking to accomplish.
Despite the utter chaos envisioned by Chairman Mao, Chairman Cerkleski and his management team had other aspirations. As the demise rumors continue to swirl, Clover Imaging acquired the assets of bankrupt LMI Solutions. And in response to a manufacturer trying to undercut reman prices, Clover Imaging counter-punched with a Silver Bullet program that provided dealers with up to 30% off current pricing for converting OEM imaging supplies accounts to Clover remanufactured cartridges. Touché!
The management team had a plan; we knew what we were doing the whole time. Acquiring one of the remaining threats in the remanufacturing industry was really important.
– Jim Cerkleski
Finally, in late November, Cerkleski and Clover Imaging’s executive leadership team announced it had struck a deal, backed by Norwest Equity Partners (NEP), to purchase the business unit from 4L Technologies. The deal capped the realization of a three-year quest for Clover Imaging to dictate its own destiny. A new dawn and era has been ushered in, and for Cerkleski, the excitement offered by the future is even more compelling and gripping than the fear and uncertainty that followed the firm the past three years. And, as he will attest, the sleepless nights are a thing of the past.
Cerkleski was able to squeeze out a little time to recount the trials and victories that shaped 2019 for Clover Imaging, and provide a snapshot of the company’s fear-free future.
2019 was an exciting year for Clover, culminating with its acquisition by the executive leadership team. Can you talk about the enthusiasm it has generated, and share a sneak peek at some of your plans?
Cerkleski: Everybody is enthusiastic and I think the focal point is the financial stability of the company. One day we’re staring down $640 million in debt, then we wake up the next day with a debt structure of about $100 million. Well, the monkey is off of our back. We’re getting back to the basics of business without the distractions that we’ve had for the last three years. We started this process of potentially selling the company in 2016. You can imagine the burden it puts on a management team, the finance team and our employee base. I think the enthusiasm we have now is incredible.
A lot of people could have walked out on this company, but not a single person left. It’s about the whole organization having faith in knowing the leadership team was going to produce a result beneficial to everybody—our customers, vendors and employees.
– Jim Cerkleski
We made the decision as a team to still have our annual leadership summit. Coming off the news of an imminent bankruptcy and with news swirling around about the company, having the leadership summit was probably the best thing we ever did. It was important to get in front and tell our leadership team what’s really happening and why they want to stick with this company. I can’t emphasize enough how great the leadership team was in keeping everybody fully informed during the process. A lot of people could have walked out on this company, but not a single person left. It’s about the whole organization having faith in knowing the leadership team was going to produce a result beneficial to everybody—our customers, vendors and employees. Everybody won in this restructuring, and not a single vendor lost one penny. Going forward, it’s all about servicing the customer.
One of the watershed moments for Clover Imaging this past year was its partnership with Norwest Equity. Can you provide some insight into the genesis of the relationship and why NEP was the right fit for what you want to accomplish?
Cerkleski: NEP has a deep understanding of this niche sector and shares the same confidence we have in the aftermarket imaging supplies industry and consumers’ demand for environmentally-conscious products like ours. Its knowledge of the space is probably the greatest out of any private equity firm that performed due diligence on our business. NEP was excited, and felt it was important that we were getting back to our roots. The right capital structure is really important to this investor, which doesn’t believe in putting a lot of leverage on businesses. That is what we wanted in a new partner. The business was bought at a very fair valuation, and that ultimately got us across the finish line.
At a time when much speculation was circulating regarding Clover’s viability in the imaging supplies market, you acquired the assets of LMI Solutions. Can you talk about the message this sent to the office technology dealer/reseller space?
Cerkleski: It was extremely important to our management team to get that deal done, given the noise in the marketplace that indicated Clover was in imminent bankruptcy danger. That put a lot of people in their place, those naysayers who said we were done and going out of business. The management team had a plan; we knew what we were doing the whole time. Acquiring one of the remaining threats in the remanufacturing industry was really important.
It also underscored our confidence in the future of the remanufacturing industry. We see great opportunity in the sustainability movement and our ability to offer businesses a circular solution that lessens the environmental impact of print. From collecting empty cartridges to remanufacturing them and then offsetting paper consumption through reforestation, we offer a solution that helps companies become more environmentally sustainable and cut printing costs.
This past summer, when the financial struggles of 4L Technologies came to light and the company began exploring its strategic options, Clover Imaging pledged business as usual and delivered on that promise. Can you talk about the focus, determination and leadership that have been the underpinnings of Clover Imaging?
Cerkleski: During all of this chaos and turmoil, we were going through this restructuring while our teams were able to acquire the assets of LMI and integrate them and the customer base into Clover’s system. Since we didn’t run on LMI’s system, we integrated everything into our systems in less than 20 days. It goes to show the capabilities of the management team at Clover and everybody executing on every level. And there wasn’t a single customer disruption.
There was unbelievable execution by our leadership team on the operations and customer service sides. That leadership and the management behind our company was the lightbulb for me to double down and invest back in this space.
During the course of the year, Clover rolled out some aggressive programs, such as Silver Bullet and Jumpstart, aimed at end-user conversion and 0% financing terms. How have they been received by resellers?
Cerkleski: Our Silver Bullet program was launched to counter HP’s Quick Silver program. We are telling customers, “Don’t forget, 80% of the marketplace is OEM, so go ahead and convert that to remanufactured and put an additional 20 to 30 points of margin in your pocket.” With our Silver Bullet program, dealers are actually getting higher margins and their customers are winning. Our program has been extremely effective in that we’ve converted hundreds of end-users from multi-year contracts.
You recently revamped Clover Imaging’s website to make it easier for dealers to garner leads and increase revenue. In what ways is the new site more effective, and what kind of feedback have you received from resellers?
Cerkleski: For the past nine months, we’ve been working on revamping our website with the goal of making it a one-stop resource for our partners. We’ve added relevant content, downloadable marketing collateral, blogs, industry news, multimedia and information about all of our products and services. It’s been really well received. Internally, reps can use it as a sales tool, while externally, our partners are able to see all the stuff we can give them to help them sell quicker and easier. We’ve also added a lot of functionality. Our goal is to make it as streamlined as possible for them to purchase product, and an example is estimated delivery date by ZIP code. Now partners can get really granular in knowing exactly when their customers will receive product. We also added cost per page for laser products to better illustrate cost savings. Also, our improved chat service makes it quick and easy for someone to ask a question when they’re in the buying process.
Amplify has been generating a lot of buzz for the work it has done to strengthen the websites, lead generation and marketing endeavors for numerous companies. What is the secret sauce behind its blueprint
Cerkleski: Blue Technologies, which has done close to a million dollars since its relaunch, is a great example of customers that are really leveraging sales and marketing together with their businesses. This dealer has a great plan as far as what its salespeople are doing out in the field, and we’re supporting them through Amplify’s efforts. We’re doing that for 46 companies throughout the industry. We’ve helped Impact Networking and other large industry leaders, and we’re really just trying to drive content, sales leads and brand awareness in the marketplace. Amplify is really there to help our customers sell the entire depth of their business portfolio.
The biggest thing our customers say is that from day one, they’re working with a marketing agency in Amplify that understands their business. Most dealers will hire a local marketing agency and need to spend the first month of the relationship explaining what they do and how they do it. When we walk into that first meeting, we know all the questions to ask and can pretty much put together a plan after a couple of meetings.
How do you see Clover evolving technology- and strategy-wise over the next few years?
Cerkleski: We’re going to continue to focus on MPS and helping our dealers. I think one of the really exciting solutions we are rolling out is our auto supplies management. The proprietary solution that we’ve built is really a game changer. It works for both our MPS partners and our transactional partners. It’s what I like to call “MPS light.” I think that strategy of ours will catch on more and more with those dealers that have technology capabilities, but don’t want to go full bore into having to dispatch a technician to turn a screwdriver. A lot of the A4 printer manufacturers are building devices to be throw-aways. HP’s most-popular printer, the M404, has a dealer cost of $180. Dealers are buying them and putting them into large installations for $250. It costs that much to do a service call. You can just replace the printer. Thus, auto supplies management becomes so important, more than it does for an MPS platform.
Most dealers will hire a local marketing agency and need to spend the first month of the relationship explaining what they do and how they do it. When we walk into that first meeting, we know all the questions to ask and can pretty much put together a plan after a couple of meetings.
– Jim Cerkleski
The AI and machine learning that our IT team is doing for our partners has been amazing. We provide a data analysis of their supply chain, and they can’t believe the information that we’re able to provide for them. The AI platform that we developed for Clover Imaging and turned into a technology service that we are able to provide our customers is absolutely a game changer. Microsoft praised Clover Imaging for what we’ve developed internally during the last 10 years, and suggested we sell it into the Microsoft world. They have started looking at the solution we developed with them to take it to their customers. We’re building a group beyond our normal IT team that will sell this solution to the office products industry, the BTA space and anybody that has inventory to distribute.
What are your goals for 2020 and what will you look to accomplish?
Cerkleski: We want to focus on getting back to our partnerships, really spend time with clients and understand their needs as either an MPS provider or a transactional provider. The senior management team spent far too much time during the last two years in board, restructuring and operational meetings. Now we can really spend time and focus on our customers.
A second objective is paying down debt, which is the most important thing we can be focused on as a restructured company. We have very low leverage, low debt, but we want to go into 2021-2022 debt-free, which would make us very nimble so that we can be positioned to make acquisitions. For 2020, I don’t think you’ll see us making any deals, unless it’s an LMI-type of situation in which the company is highly stressed.
We’ll be focusing on educating our partners on the value of our MPS platform and how it will help them lock in transactional business. We think there’s a great opportunity to further penetrate the $700 million federal/government market. And we’re taking the message of our environmentally-friendly printer cartridges directly to businesses and consumers.
What a difference one year can make. Can you compare and contrast Jan. 1 and Dec. 31?
Cerkleski: So many people in our organization are sleeping a lot better now. The stress level of what we went through during the last 12 months, compared to where we are now, changes your entire mindset. Unless you live and breathe it, it’s impossible to understand the stress that we were under. Every day was a fire drill. Now we can focus on the things we need to accomplish, which is really exciting. That holds true for a lot of our people, not just the senior management team. Those pressures were so immense; they roll downhill and distract everyone. The pressure is off, it’s a new day and we can channel all our energies into what is really important to the business—our customers.
