Lexmark prints a sale

Contact: Scott Denne

Lexmark sells to a syndicate of China-based companies for $2.5bn in cash following six years and $2bn invested to transform itself from a printer supplier into an enterprise content management (ECM) software vendor. Despite that spending, its business continued to deteriorate and a series of earnings and guidance disappointments sent it looking for the proverbial ‘strategic alternatives.’

Seine Technology Group leads the acquisition consortium through its subsidiary, Apex Technology – a maker of printer cartridges. Siene also owns Pantum International, a printer and printing services company. Private equity firms PAG Asia Capital and Legend Capital are also participating. Including Lexmark’s debt, the deal values the target at $3.6bn, or 1x trailing revenue – well below the median multiple (1.5x) for hardware providers in the past 24 months, according to 451 Research’s M&A KnowledgeBase. That’s a particularly sorry comparison considering that 15% of Lexmark’s $3.5bn in annual revenue comes from software, where multiples are usually higher.

Lexmark’s printer business has been in steady decline for a few years, dropping 12% last year. Today’s sale aims to reverse that by growing the business in Asia, where Lexmark has little presence at the moment. Lexmark’s software business has grown dramatically via M&A, yet its organic growth doesn’t impress. Enterprise software sales jumped 81% last year to $534m, although most of that was due to a half year of ownership of Kofax ($298m in TTM revenue at the time of its purchase) and its first full year as owner of ReadSoft ($119m in TTM). In the fourth quarter, its software business grew just 5% sequentially. Today’s deal comes as Lexmark is halfway through restructuring those acquisitions, which largely consisted of overlapping products, to improve profits.

Goldman Sachs advised Lexmark on its sale, while Moelis & Company banked the buyers.