5 Things You Need To Know About HP's Acquisition Of Apogee

HP Aims To Grab Bigger Share Of Managed Print Services Market

HP said its acquisition of Apogee is part of an all-out charge to increase its share of the $55 billion A3 print copier replacement market.

The company billed the acquisition as a move to "boldly" leverage the industry shift to contractual sales as it aggressively pursues the A3 copier replacement market.

HP Imaging and Print President Enrique Lores said the deal is major step for HP to grow its contractual print business. "We are really excited about the opportunity that this deal opens for us," he said in an interview with CRN. "We can really advance and accelerate our growth in the contractual space.’

Lores said the deal "complements" HP's broader strategy and does not signal a move to increase the percentage of business that it takes direct. In fact, he said, HP is committed to growing its channel business as a percentage of total revenue beyond the current nearly 90 percent mark.

Apogee Gives HP Significant Managed Print Services Muscle

Apogee is Europe's largest managed print services provider with deep multivendor relationships with major print vendors in addition to HP, including Xerox, Konica Minolta, Kyocera and Canon.

The company, which has 1,000 employees and $300 million in annual revenue, has an installed base of tens of thousands of printers and copier units that include long-term customer relationships with top copier and printer vendors.

Apogee currently does only a small share of its business with HP, but that will change over time, said Lores. "Over time, we expect the majority of their sales will move to HP," he said. "We don't think it will ever be 100 percent because there will always be customers that will demand other types of solutions."

The Deal Complements HP's Partner Strategy

The deal "complements" HP's broader strategy and does not signal a move to increase the percentage of business that it takes direct, said Lores. In fact, he said, HP is committed to growing its channel business as a percentage of total revenue beyond the current nearly 90 percent mark.

"We remain fully committed to our channel partners; close to 90 percent of the business is done through the channel and our plan is to continue to grow that," said Lores. "The partners should see this as a way for us to demonstrate our commitment to grow and advance our business in the contractual space. They should not see this as a threat. They should see this as a complement to the strategy we have been putting in place in the last few years."

HP said that Apogee will have the "same commercial relationship" with HP as any other "premium partner" with the same access to tools and programs.

Lores said Apogee will not have access to more attractive financial terms than other HP partners. "They will not have access to special terms," he said. "They will not have access to special programs. They will have access to the same terms that other resellers in this category have."

HP Plans To Leverage Apogee Acquisition To Boost Channel

HP plans to leverage any tools and methodology from the Apogee acquisition to grow the channel business, said Lores. "Our commitment to the channel has not changed," he said. "Anything that we learn that we think could be applied to help others grow we will use it [to grow the channel business]."

In fact, he said, one of the key benefits from the acquisition will be HP's ability to accelerate its knowledge of the contractual managed print services and solutions market to boost the channel. "As we improve our knowledge, it will be easier for channel partners to do business with us and should translate into a benefit for all of us," he said.

Lores said HP realized it needed to make the Apogee acquisition as part of an investment to build out its managed print services contractual relationships. "We think the services and solutions capabilities they have are going to be a great complement to the infrastructure and systems we have built for managed print services," he said. "Channel partners should stay focused on keeping the relationship we have built with them. They should not distort the great progress and the great business we have been building with them over many, many years."

Apogee Will Become An Independent Subsidiary Of HP

Once the deal is finalized, Apogee – which has up until now touted its "independence" and "brand-agnostic" print services capabilities -- will be run as an independent subsidiary of HP with a board composed of Apogee and HP executives.

HP said it expects the current Apogee management team to stay in place with the managed print services provider continuing to sell and service solutions from multiple vendors.

Apogee, for its part, said the Apogee management board led by joint CEOs Jason Collins and Robin Stanton-Gleaves will continue to lead Apogee following the acquisition.

"We will continue to trade as Apogee, an independent subsidiary of HP, continue to supply and support multiple brands of technology, and continue to grow through the strategy of acquisitions in the U.K. and Europe as well as through organic growth," the company said in a prepared statement.

The Financial Impact On HP

HP said it expects the deal to close by the end of 2018 with Apogee results "accretive" by approximately 1 cent per share on a non-GAAP basis in the first full year

Apogee reported $273 million in GAAP revenue in 2017 with earnings before interest, taxes and depreciation of $39.43 million.

HP said the acquisition – which values U.K-based Apogee at $499 million – provides HP access to "new profit pools" by expanding its ability to deliver "value-added services" in the A3 contractual market.

HP said the deal does not signal a change to its "capital allocation" strategy. "This acquisition is in line with our previously communicated M&A and capital allocation strategy," said HP in a prepared statement. "We look for companies that can help accelerate our strategy and drive shareholder value, and Apogee is consistent with this framework. In FY 2018, we continue to expect to return towards the higher end of the previously communicated range of 50 percent to 75 percent of free cash flow to shareholders through a combination of dividends and share repurchases."