Jan 29, 2008
HP Acquires Exstream Software – The First Wave in Attacking the Production Print Market?
Ed Crowley, Founding Partner – Photizo Group
The Photizo Group is an investment research and business intelligence firm that specializes in comprehensive analysis of the printing and imaging industry. Our analysts have substantial experience in the printing and imaging industry and have held marketing and management positions for leading industry firms.
Welcome to the inaugural issue of the Tombstone review. In this bi-weekly OutputLinks column I will be commenting on the latest developments in the Imaging and Printing market from a strategic and financial perspective.
Tombstone?
You might wonder about the name of the column. Why a tombstone? Am I referring to the ‘death’ of companies through acquisitions and mergers? NO! Tombstones are another name for the listings used in publications to announce mergers, acquisitions, and investments. So, think of this column as an electronic tombstone for analyzing and assessing, mergers, acquisitions, and other important events affecting the financial health of firms in the imaging and printing industry.
HP
Already, the New Year is off to a rather interesting start. As the headline indicates, Hewlett Packard (HPQ) has recently announced the acquisition of Exstream Software. Why is this important? First, it means that HP is strengthening its portfolio to attack the high volume production printing environment. Exstream’s software is heavily used in environments populated by high end InfoPrint products, iGens, and the like. Acquiring this software company gives HP an entry into this highly profitable, very high volume page space.
For HP, this is one of the few remaining areas of incremental growth. HP dominates the distributed printing space (those ubiquitous ink jet and office printers which are pervasive in the home and office). They have also seen increasing success in the Digital Press market with their Indigo product line and they are gaining ground in the ultra-wide format market with the Scitex division. So where does HP go from here?
I believe HP sees the production printing space as virgin territory which offers almost purely incremental growth. In typical HP fashion, the firm is methodically putting together the pieces required to compete in this space. Exstream Software is a key piece of the ‘printing infrastructure’ and a logical first step to gaining a footprint in these accounts.
There is only one problem with this scenario. HP does not have any printing products capable of printing the hundreds of thousands or even millions of pages a month required in this market segment. And the number of acquirable companies is becoming increasingly slim. Ricoh (7752:JP) acquired InfoPrint Systems last year, which leaves Oce’ (OCE.NV) as the primary ‘production printing’ company which might be an acquisition candidate.
Oce’
So, does HP have its sights set on Oce’? They would certainly seem like a logical choice. The company has an impressive array of production printing devices reaching into the 1,000 impression per minute range. Most importantly, the products are based on Oce’ technology, which means HP would pick up an impressive intellectual property portfolio in the production printing space. Oce’s mid-range MFP products are sourced from Sharp (6753:JP) and Konica Minolta (4902:JP), and could easily be replaced by HP’s products.
I want to make it clear that neither HP nor Oce’ has made any public announcement or statement which would support this hypothesis. So, at this point – it’s just a theory, but certainly one which bears watching.
Quebecor
Another development in progress is Quebecor World (IQW). We have watched during the last few weeks as the financial drama has unfolded around the company’s liquidity issues. Parent company (Quebecor Inc.) has been surprisingly quiet regarding long terms plans. The firm’s unique equity and ownership structure represents a significant barrier to acquisitions. Currently while Quebecor has less than 40% of the firm’s equity, they hold over 70% of the firms voting stock. We believe a buy-out of the company by a major competitor such as R R Donnelly (RRD) or Cenveo (CVO) makes a lot of sense. However, this challenging ownership structure must be addressed to make any acquisition viable.
As 2008 is already shaping up to be quite interesting, I am looking forward to sharing my Tombstone thoughts with the OutputLinks’ HVTO and Graphic Communications World audiences over the coming year.
We are going to have plenty of topics for the column! And please, feel free to send in your comments or questions to eacrowley@photizogroup.com. Just let me know if you want your name used or if you would prefer to remain anonymous.