Lexmark Agrees to Acquisition by Apex Technology and PAG Asia Capital
Investor Consortium Also Includes Legend Capital
By Frank Cannata
Lexmark International, Inc. has entered into a definitive merger agreement with a consortium of investors led by Apex Technology Co., Ltd. (Apex) and PAG Asia Capital (PAG), under which Lexmark will be acquired for $40.50 per share in an all-cash deal with an enterprise value of approximately $3.6 billion, net of cash. Legend Capital Management Co., Ltd. (Legend Capital) is also a member of the Consortium. As the result of the acquisition, which is expected to close in the second half of 2016, Lexmark will become a private company.
The Consortium intends to maintain Lexmark’s corporate headquarters in Lexington, Kentucky. Paul Rooke, chairman and chief executive officer of Lexmark, is expected to continue to lead Lexmark after the transaction closes. Meanwhile, Lexmark’s two business groups, Imaging Solutions and Services and Enterprise Software, as well as the company’s regional and country operations, are expected to continue unaffected and benefit strategically and financially from the transaction, according to a Lexmark press announcement.
“This is an exciting transaction that Lexmark’s Board of Directors believes is in the best interests of our shareholders following an exhaustive strategic alternatives review process to maximize value,” said Paul Rooke, Lexmark chairman and chief executive officer, in a published statement. “The transaction will benefit our customers and provide new opportunities for our employees.”
“As part of the Consortium, Lexmark will be able to reach the next level of growth and innovation, to the benefit of our customers, business partners and suppliers, faster than we could achieve on our own,” added Rooke. “With the Consortium’s resources, we will be able to continue to invest in and grow the business to more fully penetrate the Asia Pacific market for hardware, software and managed print services.”
Jean-Paul Montupet, lead director of the Lexmark Board of Directors, said in the Lexmark news release, “This transaction represents the culmination of an extensive review process by the Board of Directors and the next step in Lexmark’s growth and transformation. We anticipate that the transaction will cause no disruption to our operations or our ongoing cost-savings initiatives, and will only strengthen the business.”
Weijian Shan, group chairman and CEO of PAG, added, “Lexmark is a recognized global leader in printing technology and enterprise software, with a proven track record of performance, a consistent annuity-based business model and a talented workforce.”
“Lexmark’s passion for excellence and unwavering commitments to customers, employees and communities represent a tremendous cultural fit,” said Jackson Wang, Apex Technology chairman. “We are excited to work alongside Lexmark as it continues to invest in advanced technologies and solutions to best serve its customers and business partners while simultaneously pursuing additional untapped opportunities for future growth.”
On Thursday, April 7th, the news coming out of China indicated that Apex Technology Co. Ltd. was in negotiations to acquire U.S. printer and imaging systems provider Lexmark International, Inc. Headquartered in the province of Guangdong, China’s export and manufacturing powerhouse, Apex Technology is a supplier of printing cartridges and integrated circuit chips used in ink cartridges.
The source was in a Reuters Release and there was a vague reference stating that this news was “according to people familiar with the matter.”
There were rumblings from Fortune and several other news agencies actually starting on April 6. CNBC on April 18 broke with the rest of the story stating the Lexmark International has agreed to be acquired by Apex Technology and PAG Asia Capital for $3.6 billion or $40.50 per share. The transaction is valued at approximately $2.54 billion.
PAG was founded in 2002 and has grown to become one of Asia’s largest independent alternative investment management groups with US$15 billion in capital under management across private equity, real estate, and absolute returns.
PAG’s team of over 380 employees is located across Hong Kong, Shanghai, Beijing, Shenzhen, Tokyo, Singapore, Sydney and Seoul. Their local market presence and multi-strategy approach allows PAG to offer its investors, or limited partners, a full array of funds and products in alternative asset management on the one hand, and, on the other, provide flexible funding and multivariate solutions to investee companies across the capital structure and across the region. PAG focuses exclusively (up to this point) on investments in Asia.
It’s becoming less unusual for equity and venture capitalist firms to target companies in the office technology space. Here in the U.S., Equity Capital has found our industry appealing, starting with its investment in Marco in Saint Cloud, Minnesota, last year. Now we’re seeing a similar situation across the Pacific in China. Ours is a capital intensive business with heavy costs in distribution. Typically, that is not something equity or venture capitalists are interested in.
If we are correct, APEX, with the help of PAG, has acquired Lexmark to broaden its business into print devices. The problem is that the company was sold because it was not profitable. Lexmark’s business is centered on A4, which is a declining market.
We can only assume the APEX has looked thoroughly at the Lexmark MIF and the annuity supply stream and believes it can recapture the investment on that basis. Our guess—and it is only our guess—is that APEX will move the manufacturing to China. No Chinese company would find maintaining a manufacturing facility in the Philippines a long-term strategy.
We will repeat what we said about the Sharp sale. The strongest part of this organization is their marketing, engineering software, and sales team. If APEX retains that group, the transition will be much easier. If you look at Lexmark has done over the last six or seven years, they have built a premier distribution in A4 MFPs and printers.
Lexmark U.S. will become a subsidiary and operate much in the same way the Japanese have done, in the United States. APEX has to reduce the cost of the entire operation and anyone not related to sales, marketing, software engineering can expect to have a long future with this company. Again, I want to repeat this is only our guess and in time we will develop a more focused analysis.
The deal will be funded by debt financing as well as equity contributions from the consortium of Apex, PAG and Legend Capital Management. We suspect that this means a tightening of the belt. Lexmark managers were already under the gun and this should be nothing new for them.
We are happy about one thing and that is Lexmark survives. The people in Lexington deserve a break and we sincerely hope that things will go well for them under the new ownership. In what manner Lexmark will operate is impossible to say. The Chinese could quickly mandate cost-cutting measures and how deep or how wide no one can say at this point. The leaders of Lexmark did exactly what they were supposed to do and that was protecting the shareholders and they did an excellent job of it. We can only hope that they took care of their people as well.
From what we could discern the initial intent of APEX is to keep its headquarters located in Lexington, Kentucky. Lexmark also said its current chairman and CEO, Paul Rooke, will remain at the helm of the company after the close of the deal.
This article was originally published on TheCannataReport.com and appears here in slightly different format.
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Founded in 1982 by Frank G. Cannata, The Cannata Report has since become a leading domestic and international management media resource for the independent office products and workflow solutions dealer channel. Along with hosting its annual Awards & Charities Dinner, The Cannata Reports publishes 10 issues of its magazine per year and offers a host of services, including integrated marketing, event sponsorship, general industry consulting, panel assembly and moderation, and guest speaking engagements.