Industries consolidate. It’s a fact of life.

Industries form with generally one or two companies maintaining a monopoly (2016: ridesharing), before becoming fragmented as new competitors enter (2016: smartwatches and fitness bands), followed by a sometimes decades-long process of consolidation (2016: PCs), that concludes with a small handful of surviving companies with high market shares reliant on demand and diversification for growth (2016: search engines and soft drinks).

Harvard Business Review - Industry Consolidation S Curve (2002)

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The Print Industry is Due

The home and office printing industry sits somewhere near the Third Stage of what is known as the Consolidation S Curve, with recent events positioning four major manufacturers as consolidation prospects. Although the print industry has been shocked by the sudden surge in acquisition and consolidation-related chatter, it’s almost more surprising that greater consolidation hasn’t occurred already.

Seventy-eight years after the invention of the copier, the $100-plus billion home and office printing industry still lists an amazing 15 legitimate multinational manufacturers actively selling products in the US. Meanwhile, despite ongoing price and page volume declines (and numerous damaging diversification attempts), the only manufacturer consolidations that I’ve witnessed during my seven years in this industry have been Canon’s acquisition of Oce (2009), Panasonic and NEC’s exits from the A3 MFP segments (2010 and 2013), the closure of Kodak’s consumer inkjet business (2012), the sale of Lexmark's inkjet business to Funai (2013 – not exactly consolidation), and Memjet’s brief stint as an office printer maker (2010-2014).

If you consider that during the same period, the Television industry saw eight major brands exit or be acquired (Sharp, Toshiba, Philips, Hitachi, Mitsubishi, JVC, RCA, and Pioneer) and the PC industry shed three notable brands (Sony, Vizio, Gateway) with two more PC acquisitions pending (Toshiba and Fujistu), the above list of consolidated print manufacturers seems pretty low-impact and serves as yet another testament to the profitability of ink and toner.

The Next Wave of Consolidation

However, as noted above, industry consolidation is a fact of life, and we’re more than likely headed to a new wave of printer and MFP manufacturer consolidation. Lexmark, Sharp, Toshiba Tec, and Xerox have all made acquisition-related headlines in the last six months (due almost entirely to strategic mistakes outside of their print businesses), in what will likely lead to the consolidation of at least one of these major printing companies and is guaranteed to bring major structural changes to each vendor.

Lexmark: After betting big on the enterprise solutions with delayed payoffs and elusive print synergies, Lexmark is now publicly exploring “strategic alternatives,” including the split of its print and solutions businesses with intentions to sell each division. Lexmark’s Enterprise Solutions division appears headed to private equity, but Lexmark has reportedly been in discussions with heavy-hitters Canon, Konica Minolta, and Ricoh as possible buyers of its printing business. Although Canon is already the largest A4 manufacturer in the world through its OEM relationship with HP and its Canon-brand A4 lines, all three vendors are likely drawn to Lexmark’s impressive A4 hardware portfolio and enterprise/vertical MPS competencies, while also offering the vendors opportunities to expand their channels with limited threats of overlap. Konica Minolta would likely have the most to gain among the three OEMs, as Lexmark’s A4 hardware and enterprise presence would complement Konica Minolta’s SMB and mid-market focused channels and A3-centric portfolio nicely, despite the fact that Canon and Ricoh have emerged as acquisition front-runners in recent weeks.

Sharp: After years of LCD-related financial struggles and numerous attempted acquisitions of its MFP business (namely by Kyocera and Samsung), Sharp is poised to be acquired by Foxconn after the manufacturing giant outbid Network Corporation of Japan (INCJ). Although, currently stalled by revelations that Sharp was carrying $2.6 to $3.1 billion in previously undisclosed financial liabilities, Sharp certainly appears to be on its way to being acquired by Foxconn. This would not necessarily lead to industry consolidation, as Foxconn has revealed plans to invest in and seek profitable growth from Sharp’s MFP division long term. That said, given its historical market role and industry focus, Foxconn would be far more open to selling the MFP business than Sharp was previously and far more willing to sell the division to a non-Japanese manufacturer than INCJ or Sharp Corp. would be. The Sharp MFP division’s value as an acquisition target is its A3-centric hardware portfolio and respectable global sales channels and installed base, although these assets could be viewed as redundant among most traditional copier brands, making the Sharp MFP business most valuable to vendors with room to grow in the A3 segments and traditional copier channels (e.g. Samsung and HP).

Toshiba Tec: Late 2015 reports of a possible sale of Toshiba Tec came in the wake Toshiba Corp.’s accounting scandal and forecasts of a ¥550 billion loss ($4.5 billion) for its current fiscal year, prompting moves to shed jobs and divest from businesses that are either losing money or fall outside of Toshiba’s core business areas (TVs, Medical Devices, PCs, etc.). Although Toshiba Tec’s various MFP and POS assets could be attractive to potential buyers either inside or outside of the printing and retail industries, there have been no reports of a specific buyer, understanding that the companies who have shown public and private interest in Sharp’s MFP business would be attracted to Toshiba Tec for the same reasons (A3 hardware, dealer and SMB-direct channel expansion, MIF expansion).

Xerox: Shortly after announcing intentions to reverse its services-led transformation and split into BPO and Document Technology companies by the end of 2016, Xerox joined the list of printing companies rumored to be acquisition targets. Xerox was quick to refute these claims, maintaining that it plans to create two successful separate entities, with the caveat that it would still field any reasonable acquisition offers for either of the companies as it advances towards its late-2016 split. Although Xerox’s $11 billion printing business is not easily acquired, Xerox surely has a range of impressive assets (production, enterprise MPS, channel, installed base), and offers a unique value to Fujifilm. If Fujifilm were to acquire Xerox, it would gain complete control of Fuji Xerox (currently 75% Fujifilm / 25% Xerox) and expand its presence beyond Asia, while also protecting Fuji Xerox’s greatest revenue and profit source from being acquired by a competitor.

gap consolidation matrix

Staying Ahead of the Curve

Understanding that acquisition rumors have far outnumbered completed deals in recent years, and noting that gap intelligence wishes all its friends at these respective companies stable and successful futures, it is almost certain that we are headed towards a period of increased acquisitions and consolidation in the print industry.

As of today, it appears that Foxconn’s acquisition of Sharp is the most likely out of the above scenarios (not industry consolidation, but could precede it) to take place. Meanwhile, Canon, Konica Minolta, and Ricoh have each made headlines as suitors for Lexmark’s print business, suggesting the next acquisition with the greatest industry consolidation impact could take place in Lexington, Kentucky. However, this is a short term outlook and once the fate of these transitioning manufacturers is established, there will likely be a new wave of mergers and acquisitions that will come after it.

The most successful print manufacturers will treat this environment of consolidation as an opportunity, understanding that the vendors who create and execute the best consolidation strategies will emerge among the short list of companies dominating the post-consolidation print industry.