Printer Industry Consolidation: 5 Big Things To Know

HP and Xerox may not be joining forces for now, but there are plenty of signs that the industry is still poised for M&A activity.

Come Together

HP-Xerox is over. But that doesn't mean there won't be more talk of consolidation in the printer industry again soon.

The industry continues to see declines in both supplies--the sector's biggest profit driver--and in hardware, as well. Worldwide, unit sales of printers/MFPs fell to 94.5 million in 2019, down 4.6 percent from 99.1 million the year before, according to IDC figures. In the U.S., the drop was even steeper--a 6.3-percent decline to 17.9 million units last year, IDC reported. The declines come even as at least a dozen vendors remain highly active in the market. The printer industry is clearly "ripe for consolidation," said Brett Bailey, vice president and partner at Saskatoon, Saskatchewan-based WBM Technologies, No. 318 on the 2019 CRN Solution Provider 500.

As part of CRN's Printer Week 2020, in the following slides we've compiled five key things to know about printer industry consolidation.

Why HP-Xerox Fell Apart

On March 31, Xerox's hostile bid to acquire HP came to an end after five months of corporate drama. Xerox withdrew its tender offer for HP shares and said it would not pursue the nomination of its candidates to HP's board of directors. While HP's board had staunchly opposed the takeover bid and enacted numerous measures to fight it, Xerox's decision resulted from the COVID-19 pandemic and the "resulting macroeconomic and market turmoil," the company said.

The move came after Xerox's share price plummeted amid the global spread of the coronavirus. Xerox’s proposed $34.9 billion cash-and-stock deal for HP was pegged to a Xerox stock price of $37.68 a share from Feb. 6. Xerox's shares closed at $18.94 on March 31--leaving a massive gap in the company's proposed acquisition deal for HP, and requiring Xerox to either raise more cash or offer more stock. Neither option appeared tenable; more cash would've further saddled the combined entity with debt, while more stock would likely have provided HP shareholders with a majority stake in the merged company.

More M&A Ahead?

Keith Kmetz, program vice president for imaging, printing and document solutions at IDC, agrees that the print industry could still see additional consolidation in the years to come. "We've been talking about maturity and consolidation pending for some time. And many say look, there are still 10 to 12 companies in this office printing segment of market. Maybe that's too many. Either some are going to get out, or some are going to merge or consolidate and create a bigger, stronger entity," Kmetz said.

"But I think there's some credibility behind that line of thinking, that maybe 10 to 12 players isn't what we should be going to market with--but some reduced number may make more sense," he said.

Even if Xerox and HP never find a way to combine forces with each other, the two companies--as two titans of the print and copier industry-- may very well pursue M&A separately, Kmetz said. "I wouldn't be surprised if one of these companies or both of these companies looks at further acquisition activity in the print market," he said.

HP, Xerox M&A Aspirations

In January, Xerox CEO John Visentin (pictured) said during a Xerox call with analysts that "the printing industry is decades overdue for consolidation and the first mover will have a significant advantage." Xerox's recent revenue declines could provide a special impetus for M&A. "They're primarily print-focused," Kmetz said. "And what we've seen from Xerox over the last several quarters are revenue declines of 4, 5, 6 percent from quarter to quarter, and in year-over-year comparisons. They can only do so much cost cutting and better operational management, before the market starts to question, 'OK what's your growth strategy?'"

HP, of course, already absorbed another major print industry player in recent memory, with its $1 billion acquisition of Samsung's printer business in 2017. HP fully agrees that "additional value can be created through consolidation," HP CEO Enrique Lores said in February, during the company's quarterly call with analysts. "In fact, instead of talking about being a first mover, we have been a first mover. Our acquisition of Samsung's printer business in 2017 is an important example."

In March, the Financial Times quoted Lores as saying that "there are other potential M&A [transactions] that we are constantly analysing." HP sees that "M&A is a way to create value for our shareholders," Lores reportedly said.

The Other Top Players

As mentioned, there are at least 10 other print industry players besides HP and Xerox that could be potential acquirers in the market--or acquisition targets. IDC's latest hardcopy peripherals report, for the fourth quarter of 2019, found that the other largest players in terms of worldwide unit shipments were Canon, with a 21.4-percent market share; Epson, with a 19-percent share of the market; and Brother, with an 8-percent market share. (The research firm's Quarterly Hardcopy Peripherals report tracks A2-A4 devices including single-function printers, multifunction devices and single-function digital copiers.) Additional key players in the industry that could theoretically be involved in future consolidation include Konica Minolta, Lexmark, Ricoh, Sharp, Kyocera, Fujifilm and Oki Data.

Partner Take

"It certainly appears from my perspective that the industry is ripe for consolidation, which is a consistent message that we hear throughout the industry," said Brett Bailey, vice president and partner at WBM, which partners with HP, Ricoh and Lexmark.

"To me this means consolidation in terms of technology manufacturers, where I would say there is already an established trend of strategic acquisition or partnering arrangements, and where we are now seeing manufacturers adopt differing transformative strategies for the future," Bailey said in an email to CRN. "When you look across the players involved, they all have proven track records in this type of approach, not only in print, but in other lines of business as well, from displays to mobile devices.

"But to me, this 'ripe for consolidation' theme also applies to the channel partners, where we are seeing organizations with establish best practices and efficiencies being able to grow through acquisition, and the opportunities to do so are increasing," he said. "At WBM, we have found tremendous success in using acquisitions to move into new markets, introduce great experienced people to our teams, and add fantastic customers to our client community. These represent outcomes of consolidation that bring wins for all stakeholders, and most importantly generate new levels of customer value and opportunity."