Ten years ago, the U.S. supplies industry was in the midst of rapid growth and change. Demand for cheaper, non-OEM cartridges exploded across channels. Retailers including consumer electronics outlets, mass merchants—even pharmacies and grocery stores—devoted more shelf space to the category and office superstores along with various distributors offered an increasing selection of brands and SKUs. Remanufacturers discovered that outsourcing production to Asia, Latin America, Eastern Europe, and other regions could be more profitable than manufacturing products in the States and many began to shut down lines and limit manufacturing capacity. Consolidation was also rampant, as established third-party supplies vendors looked to grow through acquisition, and banks and other investors lined up to put their money into the white-hot industry.
All the frenetic activity began to abate after a couple of years, however. While industry consolidation continued well into the Great Recession, the blush was off the bloom. With the exception of office superstores, most retailers removed third-party supplies from their brick-and-mortar stores and focused exclusively on selling OEM SKUs. Cartridge consumption fell as print volumes nosedived during the economic downturn and some of the reman industry’s most well-known firms including Nukote and Rhinotek floundered. Banks grew stingy after the recession and most investors were no longer interested in placing bets on the declining hardcopy market. Unable to secure operating capital, a number of third-party supplies vendors were forced to fold up their tents.
But, things appear to be changing again. Starting last year, the third-party supplies industry has shown signs that money is flowing back into the space. Certain large remanufacturing enterprises including Clover and Turbon have made key U.S. acquisitions over the past 12 months. Likewise, the ownership of some of the North American industry’s leading distributors such as Densigraphix and Printer Essentials have changed hands. I have also heard that similar moves are afoot in other regions like Europe and Asia and that some offshore firms are investing to strengthen their positions in the U.S.
The Clover-MSE Merger
The deal that has gotten the most attention came at the start of the summer when Clover Technologies, the world’s largest third-party supplies vendor, announced jointly with the second largest remanufacturer in the U.S., Micro Solutions Enterprises (MSE), their plans to merge. For Clover, mergers and acquisitions are not new. According to a Wall Street Journal article published in 2003, Clover president Jim Cerkleski was looking to expand by gobbling up smaller remans more than ten years ago. Clover’s first big deal came in 2005 when it acquired the North American and European divisions of Ricoh Printing Systems America (RPSA) marketing third-party supplies under the Dataproducts brand as well as others.
After the Dataproducts purchase, Clover went on to acquire some well-known U.S. aftermarket firms including Cartridges Are Us, GRC, and more. The company was growing organically as well as through acquisition and had many large clients including various Big Box stores such as Staples. In 2010, Golden Gate Capital, a private equity group that owns such brands as California Pizza Kitchen, Eddie Bauer, and J. Jill, as well as many others, acquired Clover. Purchasing the West Virginia-based reman West Point Products along with Clover, Golden Gate’s acquisition was a roll-up of sorts. In 2008, West Point had purchased Multi-Laser, one of the larger Canadian remanufacturers, and was among the top 5 remanufacturers in the U.S. when Golden Gate made its move.
Clover has continued to grow through acquisition. In April 2010, the firm has acquired Redmond, WA-based Pinpoint, which manufactures compatible cartridges and ribbons for postage machines. In addition to its U.S. acquisitions, Clover purchased Europe’s TRS Group, a remanufacturing concern consisting of TRS AG, TRS Swiss, and Sakaar Printing Design and Engineering. Clover also bought the German remanufacturer K+U Printware GmbH and its empties-collection subsidiary, Collecture. Clover has demonstrated an affinity for empties brokers, purchasing two of the largest in the U.S., Environmental Reclamation Services (ERS) and Office Products Recycling Associates (OPRA), along with Reclaim-it in the U.K. Clover made other acquisitions as well including Depot America, a provider of new and refurbished printer parts and printers along with repair service and technical support and more recently, the mobile-device recycling firms, Full Circle Wireless and Wireless Source.
I think MSE’s most recent acquisitions were in 2007, when the company purchased Laser Imaging International (LII) along with LII’s sister company Perfect Ink and the Greenman Group, which was based in the U.K. Over the past couple of years, MSE has made key investments in its existing infrastructure rather than making purchases outside the company. In 2013, the company, which is based in Van Nuys, CA, opened a 25,000-square foot facility in Pennsylvania and doubled the size of its East Coast sales and distribution center. It also expanded its European distribution operations with the purchase of a warehouse and offices in the central Netherlands. This year, MSE added a warehouse in Johannesburg to better serve markets in South Africa and Southern Africa.
The MSE acquisition should add somewhere in excess of $100 million in revenue to Clover’s coffers and most industry watchers agree that the firm is doing over $1 billion worth of business annually. Beyond the added revenue, I think the real value of the merger will be revealed over time.
If OEMs continue to secure general exclusion orders from the U.S. International Trade Commission, adding MSE’s large manufacturing center in Southern California will be of high value to Clover, which currently has several other ink and toner facilities in the U.S. I understand that Clover and MSE also have some fairly large clients, including certain OEMs that market remans, as well as office superstores and other retailers. These large customers will welcome the news that Clover will be able to produce more products in the U.S. rather than rely on imports that could be stopped at the border. For these larger customers, the merger means less supply chain worries. And, last but certainly not least, adding MSE may at some future date allow Golden Gate to take Clover public, which is a move the industry has long expected.
Bad News? All Depends
The merger of Clover and MSE will not have a big impact on most U.S.-based remanufacturers. These companies are much smaller than their giant rivals and they have had to compete with Clover and MSE separately for years. The combined companies may allow for improved internal efficiencies and, thus, better profits for Clover and MSE, but it is doubtful it will give either company any pronounced advantage against smaller competitors that the individual firms did not possess prior to the merger.
While I expect it to be a non-event for small U.S. remans, the marriage of Clover and MSE will be a concern for large international remanufacturers based outside of the U.S. The merger strengthens the position of both companies in overseas markets especially in Europe, where MSE will give Clover more market share as well as improved logistics capabilities.
(“Author’s note: In the original version of this article, it says: “In addition to strengthening both companies’ presence, abroad, each firm outsourced some of their cartridge production to foreign suppliers, and combining the firms’ manufacturing assets will make the merged company more self sufficient.” Contrary to my assertion, MSE contends that it does not source cartridges foreign suppliers. I apologize both to the ENX readers and to MSE for the mistake and for any confusion it may have caused. CB”)
I suspect that the company that will be most affected by the Clover-MSE hook-up will be Hattingen, Germany-based Turbon Group. For the past several years, the firm has been quite vocal in its interest in the U.S. market. Turbon, which is traded on the Frankfurt Stock Exchange under the symbol TUR, has told its investors that the company is investing to grow its share of the U.S. color market. Forced to go toe-to-toe with Clover and MSE will make gaining that share more difficult for the German firm. However, Turbon made a couple of key acquisitions in the U.S. prior to the Clover-MSE deal, which have already provided it with more share of the U.S. market and reinforced its position in the region. The company is also adding new executives to its management team who are veterans in the U.S. market.
Turbon’s Purchases
In the second half of 2013, Turbon purchased two well-known U.S. third-party supplies vendors. In early September, Turbon America, the U.S. subsidiary of the Hattingen company, announced that it has acquired Clarity Imaging Technologies of Saddle Brook, NJ for an undisclosed amount. Over the Christmas holiday, Turbon announced that it has purchased the Woodland Hills, CA-based remanufacturer International Laser Group (ILG).
Clarity manufactures compatible toner cartridges including those in its PageMax line, which feature a patented technology to deliver twice the yield of the equivalent OEM cartridge. So-called extended-yield or jumbo toner cartridges are popular these days and are being marketed as ideal for managed print services (MPS) programs due to the cartridges’ lower page costs and user-intervention rates. Prior to the Clarity acquisition, Turbon offered extended-yield SKUs like those in its Print Master Plus line, but not all of these cartridges offer twice the OEM yield. Clarity’s compatible cartridges had the added advantage of typically costing significantly less to manufacture than remanufactured cartridges, which should provide Turbon with better margins than remans, as well as a product that can be priced more competitively.
Turbon reached an agreement to purchase ILG on Christmas Eve. Although details of the acquisition were not disclosed, the firm issued an English-language statement on December 27 saying the sale was completed. ILG’s management team has remained intact, and ILG continues to operate independently. Turbon said purchasing ILG would help it to grow total group annual “turnover” (a.k.a. revenue) to €100 million ($139.5 million) and allow it to grow its share of the North American market. The acquisition should help return Turbon to the ranks of leading North American third-party supplies vendors in terms of market share and revenue. Prior to the recession, Turbon began to lose share in the region and the slide continued through 2011.
The acquisitions are bearing fruit, at least in terms of Turbon’s top-line growth. In April, the firm reported its preliminary results for 2013 and provided guidance for the current year saying, “We are planning a group turnover of over 100 million euros and with an increase of pre-tax profit in the group to more than 6.0 million euros.” The goal seems ambitious given the firm’s lackluster performance last year. In fiscal 2013, Turbon’s consolidated revenue totaled €75.4 million, a decline of 12.6 percent from the €84.9 million in revenue the firm recorded in 2012 and net profits withered. Now, however, the German remanufacturer is on track to hit its 2014 revenue target. On May 14, Turbon reported its first-quarter revenue more than quadrupled compared to the same period in 2013, jumping to €25.1 million this year compared to €6.3 million in the first quarter of last year. The firm credited its Turbon America subsidiary and the ILG acquisition for the revenue growth.
Turbon should also grow its sales in the European market this year. On July 2, The Recycler, a UK-based website and monthly magazine that caters to Europe’s third-party supplies industry, reported that Embatex, an Austrian remanufacturer, and Turbon announced jointly that they have entered into a “long-term” cooperation agreement. The two companies will cooperate in R&D and cartridge development as well as other areas. In addition, The Recycler said, “Embatex’s management has decided to ‘transition’ its toner cartridge remanufacturing” from its facility in Austria, to the Turbon plant in Romania. The Embatex-Turbon agreement is not a merger. Each company will continue to operate separately, maintaining different sales teams in their respective markets. By adding Embatex’s remanufacturing, Turbon is expected to produce approximately 700,000 more toner cartridges annually.
Other Notable Acquisitions
While the M&A activities of the remanufacturing giants have grabbed a lot of headlines, smaller companies have also been investing in new assets and these acquisitions have the potential to further impact the industry’s competitive landscape. Perhaps the most interesting moves came this summer from LMI Solutions, a toner cartridge remanufacturer based in Phoenix, AZ. The firm, which has joined the ranks of the Top 5 U.S. remanufacturers with the acquisition of ILG and MSE, is now gunning to be one of the region’s leading hardware refurbishers. On June 13, LMI acquired Global Printer Services (GPS) and at the end of July it bought Printersdirect. GPS employs approximately 60 full-time workers and has manufacturing and distribution assets at its Madison, WI headquarters as well as in Minneapolis, MN, and a distribution facility in Las Vegas, NV. GPS claims to be the number-one remanufacturer of HP printers and MFPs in the U.S. and LMI estimates it shipped over 18,000 refurbished printers in the past 12 months. According to the Printersdirect website, the Atlanta, GA-based firm was established in 1995 and has refurbished over 100,000 machines.
LMI has proven itself to be an innovator in the remanufacturing industry. Offering a print-management solution in 2006, it was an early MPS adopter. In 2011, the firm teamed up with the solutions provider MWAi to support printer OEMs and their channel partners as well as third-party supplies vendors with an integrated fulfillment solution for LMI products. In 2012, LMI partnered with Samsung to become a preferred third-party supplies vendor to Samsung dealers. The ability to offer its customers refurbished hardware ought to be welcome. Dealers and VARs are finding they can improve their MPS margins by placing refurbs rather than brand new equipment. The selection of machines that GPS and Printersdirect offers should be able to support existing printer environments and provide good targets for LMI’s aftermarket cartridges.
The channels that support the North American supplies industry also seem poised to consolidate. At the end of last year, the XSE Group, which operates the imaging supplies wholesaler Image Star, acquired the assets of Printer Essentials, a third-party supplies wholesaler headquartered in Reno, NV, for a little over $2.6 million. The acquisition allowed XSE to pick up Printer Essentials’ customers and add a well-known third-party brand name to its portfolio. Printer Essentials, which had been owned by the private-equity group Kayne Anderson Capital Investors, is being run independently and its brand remains intact. Printer Essentials continues to sell its Premium Imaging-branded line, while XSE will sell its Hyperion-branded supplies.
Another well-known North American distributor, Densigraphix Kopi, announced some big changes this year. In May, the 35-year-old Montreal-based company pronounced it had a new owner, a new management team, and a new, shortened name. Now officially known as the Densi Corporation, the firm is run by Eric Melka, who was appointed CEO after acquiring 100 percent of the company’s shares. Densi’s founder and CEO, Camille Cotran, has retired since Mr. Melka purchased the firm. The new CEO appointed Amir Rosenzweig as Densi’s senior vice president of business development, and Jane Todd as the firm’s chief financial officer. According to the press release announcing the changes, Densi plans to grow its team, geographic reach, products and services, and its customer base.
More to Come!
I have focused on changes in the North American market for this article, but similar M&A activities are going on around the world. In addition to the Embatex-Turbon alliance in Europe, one of the region’s largest third-party supplies vendors, Armor, recently announced it had new owners. In April, seven members of the firm’s top management team, including CEO Hubert de Boiseredron, bought a majority stake in the company. The firm had sales of €217 million ($301.4 million) in 2013 and employs almost 2,000 workers worldwide. Similarly, I have heard that there are a couple of large firms in China moving to consolidate the highly fragmented industry in the south. While I have been unable to confirm the news, if true, a more consolidated Chinese industry would have a tremendous impact on the global supplies markets.
Here in the U.S., I expect that we will hear of more M&A news before the end of the year. Although there are fewer and fewer large remanufacturers in the region, without naming names, there are a number of companies in the channels that seem ripe for the picking. I’m also hearing rumors that the competitive landscape of suppliers to the industry is in flux, with some large firms exiting the market and others looking to enter. And, of course, for years there have been efforts to roll-up various small remanufacturing concerns to create a new regional powerhouse.
All I can say is, “Stay tuned!”
