Tim Mueller’s Transaction Analysis: New IT M&A Deals Aug 6

HP To Acquire Apogee for $500M

Financial Information*

  • Enterprise Value ~$500M
  • EV/LTM Revenue N/A

Transaction Facts

  • HP (NYSE: HPQ) announced yesterday its definitive agreement to acquire UK-based managed print services provider Apogee Corporation for £380M, or ~$500M.
  • As part of the agreement, Apogee will operate as an independent subsidiary of HP.
  • The deal is expected to close by the end of this calendar year.

Advancing Its Managed Print Services Operations

  • Strong Relationships: Apogee not only has relationships with HP but also with major print vendors like Xerox, Konica Minolta, Kyocera and Canon. With 1,000 employees and $300M in annual revenue, Apogee is the largest independent print provider in Europe. Since Apogee has a strong portfolio of high-margin contractual printing services, many of which are long-term contracts for the delivery and sale of hardware and services, HP can be optimistic about revenue gains down the line; the giant can tap into Apogee’s current access to SMB and mid-market customers through forthcoming contract renewals.
  • Rich Acquisition History: In 2016, private equity firm Equistone Partners invested in Apogee in a transaction valuing the company at ~$230M. Under its PE parent, the company was able to make several acquisitions, including CityDocs, Danwood and EFCO Corporation.
  • Market Share Growth: Through this acquisition, HP is expecting to gain more market share in the A3 copier space, currently valued at $55B. The giant also is looking to expand its MPS business to new channels.
  • Successful Past: This deal is the next biggest after HP’s first major acquisition in the A3 market with its purchase of Samsung’s printer business for $1.05B back in 2016. The Samsung acquisition gave its printing unit a strong boost, as HP reported its printing revenue has been steadily growing at 11 percent year-over-year in May.

For more information about this transaction, click here to read the press release.

*Financial information from the press release and FactSet.

To receive instant analysis on the day’s business news from Tim Mueller, contact [email protected]. Check out a list of diverse assets for sale on SBN’s IT M&A Marketplace powered by IT ExchangeNet here.

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Analysts cut price targets on HP, see slow turnaround

PALO ALTO, Calif., Thu Oct 4, 2012 – A slew of brokerages cut their price targets on Hewlett-Packard Co. stock, saying the weak economy will continue to weigh on the company that has been plagued by operating problems and slow growth in its computers and printers businesses.

HP warned of an unexpectedly steep earnings slide in 2013 on Wednesday, with revenue set to fall in every business division except software.

Shares of the company fell about 4 percent to $14.26 on Thursday morning. They fell 13 percent to a nine-year low on Wednesday.

Analysts expect the company’s revenue and margins to falter, increasing uncertainty about its recent strategic decisions which focus on transforming the former industry powerhouse into an enterprise computing corporation that can take on IBM and Dell Inc.

“HP’s assumption of turning around the enterprise services business within one-two years looks aggressive, given the significant revenue decline and margin deterioration expected in fiscal 2013,” BMO Capital Markets analyst Keith Bachman said.

HP’s 2013 outlook falls flat, shares near nine-year low

SAN FRANCISCO, Wed Oct 3, 2012 – Hewlett-Packard offered a 2013 earnings outlook on Thursday that underscored slow progress on CEO Meg Whitman’s turnaround plan and decelerating technology spending worldwide, sending its shares to a nine-year low.

Shares in the largest U.S. technology company by revenue plummeted as much as 7 percent after it forecast earnings, excluding certain items, of between $3.40 to $3.60 a share in fiscal 2013.

Whitman on Wednesday blamed unprecedented executive turnover in past years for dragging out the turnaround of the sprawling Silicon Valley computing giant.

Whitman, who became HP’s third CEO in as many years after taking the helm from an abruptly dismissed Leo Apotheker, is trying to revitalize the former industry icon via layoffs, cost cuts, and expansion into areas with longer-term potential such as providing enterprise computing services.

Apotheker’s 11-month tenure was marked by an acceleration of departures from various divisions, such as networking chief Marius Haas, as he brought in former coworkers from SAP AG.

“My belief is that the single biggest challenge facing Hewlett-Packard has been changes in CEOs and executive leadership, which has caused multiple inconsistent strategic choices and frankly some significant executional miscues,” Whitman told investors at an annual conference in San Francisco.

HP posts mega-loss after EDS writedown

SAN FRANCISCO,. Thu Aug 23, 2012 – Hewlett-Packard Co. swung to an $8.9 billion quarterly loss as personal computer sales shrank again and it swallowed a huge write-down linked to its $13.9 billion purchase of Electronic Data Systems Corp.

The company also on Wednesday reduced its full-year earnings outlook slightly to the low end of its previous range, responding to a faltering PC market as well as touch economic conditions in Europe and also China, where growth too is slowing. Its shares slid more than 4 percent in late trading.

The No.1 personal computer maker, which employs more than 300,000 people globally, is undergoing a multi-year restructuring aimed at focusing the sprawling corporation on enterprise services, in the mold of IBM. The plan calls for reducing its employee base by 8 percent.

HP will have gone through about half of its targeted job reductions by the end of the fiscal year, HP’s Chief Financial Officer Cathie Lesjak said in an interview. It cut 4,000 jobs in fiscal third quarter and will likely have shorn 11,500 jobs by end of fiscal 2012, she said.

“HP is definitely showing progress in terms of turning around the company,” said Sterne Agee analyst Shaw Wu. “One of the clear signs is a better predictability of earnings.”

The company was plagued by poor forecasting during former CEO Leo Apotheker’s brief tenure.

CEO Meg Whitman has urged investors to be patient as she works to jumpstart revenue and cut costs.

HP raises third-quarter profit forecast, takes $8 billion charge

PALO ALTO, Calif., Wed Aug 8, 2012 – Hewlett Packard Co. raised its third-quarter earnings forecast on Wednesday and said it was writing down the value of its services business by $8 billion.

The world’s No. 1 personal computer maker also said more employees than expected were taking early retirement and it was implementing a workforce reduction program faster than expected. Because of this, it raised its estimate of a pre-tax restructuring charge to as much as $1.7 billion.

HP said it now expects third-quarter earnings, excluding one-time items, of about $1.00 per share, compared with analysts’ average estimate of 97 cents, according to Thomson Reuters I/B/E/S.

HP previously forecast earnings of 94 cents to 97 cents per share. It did not say why it was raising its outlook.

The company’s shares gained 2.5 percent to $19.44 in mid-morning trading.

“Everybody was expecting them to miss the quarter. Now they said they are going to beat their forecast. That’s why the stock is up,” said Shaw Wu, an analyst with Sterne Agee.

HP said it did not expect the writedown in the services business to result in “any future cash expenditures or otherwise affect the ongoing business or financial performance” of the segment.

The company, which announced major job cuts in May, said it now expects a pre-tax restructuring charge of between $1.5 billion and $1.7 billion, up from a previous estimate of $1 billion.

HP said in May that it planned to cut about 27,000 jobs, or 8 percent of its workforce, over several years in an effort to save up to $3.5 billion annually.

HP and Oracle set for court clash over Itanium

SAN FRANCISCO, Mon Jun 4, 2012 – Lawyers for Hewlett-Packard Co. and Oracle Corp. will face off in court on Monday for opening statements in a bitter lawsuit over Oracle’s decision to end support for HP’s Itanium-based servers.

The trial, in which HP seeks up to $4 billion in damages, comes just days after Oracle lost a separate high stakes case against Google over smartphone technology.

Top personalities from both Oracle and HP – such as Oracle Chief Executive Larry Ellison, President Mark Hurd and HP board member Ann Livermore – could take the stand.

Intel Corp. is not a party in the lawsuit, though its CEO Paul Otellini might also testify.

Oracle decided to stop developing software for use with Itanium last year, saying Intel made it clear that the chip was nearing the end of its life and that Intel was shifting its focus to its x86 microprocessor.

But HP argues that Oracle and HP had agreed that support for Itanium would continue, without which the HP equipment using the chip would become obsolete.

HP to lay off 27,000 over next few years, profit slides 31 percent

SAN FRANCISCO, Thu May 24, 2012 – Hewlett Packard Co. plans to lay off roughly 27,000 employees or about 8 percent of its workforce over the next couple of years to jumpstart growth and save up to $3.5 billion annually, sending its shares 11 percent higher.

The company said the layoffs would be made mainly through early retirement and would generate annual savings of $3 billion to $3.5 billion as it exits fiscal year 2014, when the layoffs are expected to the completed.

The world’s No. 1 personal computer maker, which employs more than 300,000 people globally, also said on Wednesday that it had a 31 percent decline in second-quarter profit and a 3 percent decline in revenue, compared with a year ago.

The results, however, were better than Wall Street expectations.

Layoffs “adversely impact people’s lives, but in this case, they are absolutely critical to the long-term health of the company,” Chief Executive Meg Whitman said.

“This is broad based,” she said in an interview. “By design, it will touch all of HP.”

Whitman said a third of the layoffs would be in the United States. The company will take a pretax charge of $1.7 billion in fiscal 2012 related to the layoffs.

Whitman plans to boost spending on research and development, especially in printing and PCs, with the savings from the cost cuts.

Sterne Agee analyst Shaw Wu said the quarter was surprisingly strong for HP, which had missed its own forecast most quarters in the last 18 months and prior to Whitman taking over as CEO.

HP, Oracle seek pretrial wins in Itanium case

SAN FRANCISCO, Tue Mar 26, 2012 – U.S. tech giants Hewlett Packard and Oracle (ORCL.O) on Monday both sought pretrial wins in their bitter legal battle over whether Oracle can end support for Itanium, a heavy-duty microprocessor.

Oracle decided to discontinue support last year, saying Intel Corp. made it clear that the chip was nearing the end of its life and that Intel was shifting its focus to its x86 microprocessor.

But HP argues that the companies agreed support for Itanium would continue in an earlier settlement reached over Oracle’s hiring of former HP chief executive Mark Hurd, and has sued Oracle in a California state court, calling Oracle’s decision “anti-customer.”

Oracle has countersued, accusing HP of false advertising for failing to disclose the terms of its contract with Intel.

Relations between HP and Oracle deteriorated rapidly when Oracle quickly hired Hurd after he left HP in 2010 amid questions about his relationship with a female contractor, with Oracle CEO Larry Ellison publicly criticizing HP’s handling of the matter.

HP later filed a trade secrets lawsuit against Hurd related to the Oracle hire and although that was soon settled, the firms’ mutual acrimony only got worse when HP later hired Ellison’s arch-rival Leo Apotheker as CEO. Apotheker was replaced by Meg Whitman last September.

Seeking judgment before the trial which is scheduled to start May 31, HP argued on Monday at the time of the Hurd settlement, Oracle General Counsel Dorian Daley had said the deal meant that the companies “would continue to work together” as they had.

Oracle argued in its filing that Daley never intended the Hurd agreement to be anything more than a symbolic statement, as opposed to a legal commitment.

“We don’t believe, nor do we think HP really believes, that a settlement agreement relating to Mark Hurd’s employment could possibly obligate Oracle to write new software for a platform that is clearly (at the) end of life,” Oracle attorney Dan Wall said in a statement.

A hearing on both companies’ requests is scheduled for April 30.

JP Morgan restarts Hewlett-Packard; cautious on big challenges

PALO ALTO, Calif. ― Hewlett-Packard Co. could face a troubled turnaround, with tough challenges that could result in underwhelming revenue and earnings growth, JP Morgan said, resuming coverage of the Silicon Valley company with an “underweight” rating.

HP is likely to underperform its peers as it undergoes a leadership transition, and the broader economy affects an overhaul of its businesses, JP Morgan analysts, led by Mark Moskowitz, wrote in a client note.

In August, HP stunned Wall Street by dropping its new TouchPad tablet device and saying it may spin off the world’s largest personal computer business.”HP’s $11.7 billion buy of software company Autonomy is expensive in the context of slowing organic growth and was not in the best interest of shareholders,” Moskowitz said.

“We think HP has set an unfavorable precedent that favors the sellers, not shareholders … HP will have to make a series of acquisitions over the next 5-10 years to become a full-fledged, one-stop IT shop,” he said.

The analyst expects HP, which has missed profit expectations three quarters in a row, to further disappoint Wall Street in the near to mid-term.

“The unclear messaging related to the PC business has contributed to competitive displacements, based on our conversations with industry contacts. It is our view that Dell and Lenovo are the early beneficiaries,” Moskowitz said, adding a slowdown would weigh on HP’s printer and services businesses.

Printer sales are likely to be dented as consumers move to smartphones and tablets, and slowing demand squeezes corporate IT budgets.

HP last month named Meg Whitman as president and CEO, replacing Leo Apotheker in a bid to restore investor confidence in the tech blue-chip.

Moskowitz praised Whitman’s leadership and communication skills, but expressed concerns about the former eBay Inc. CEO’s appointment.

“Our research indicates Whitman was not always willing to make the big changes at eBay near the end, and changes that investors had sought did not occur until after Whitman’s tenure. We are cautiously optimistic on the new appointment.”

Shares of the company closed at $23.02 on Tuesday on the New York Stock Exchange.

HP may oust CEO Apotheker, hire eBay veteran Whitman: source

PALO ALTO, Calif. ― Hewlett-Packard Co’s board convened on Wednesday to consider ousting CEO Leo Apotheker after less than a year on the job and replacing him temporarily with former eBay CEO Meg Whitman, a source familiar with the matter said.

HP’s board of directors — facing shareholder lawsuits and intensifying criticism from investors — is thrashing out a host of issues, including whether to name Whitman as the interim CEO, the source told Reuters.

The storied Silicon Valley giant is fighting to restore its crumbling credibility. During his 11-month tenure, Apotheker slashed sales forecasts repeatedly, backtracked on promises to integrate Palm’s webOS software into devices, and struggled to halt a 50 percent plunge in the share price.

No decisions have yet been made about leadership, the source said on condition of anonymity because of the sensitivity of the issue.

Wall Street roared its approval, sending HP shares up 6.6 percent to close at $23.96, a gain of $3 billion in the company’s market value.

If Apotheker is let go, he would be the third CEO in a row to be ousted by the board of the largest U.S. technology company by sales.

Analysts say the odds may have been stacked against Apotheker from the beginning. Venture capitalist Ray Lane, who this year assumed chairmanship of an often-lambasted but powerful board, has argued that previous management underinvested in areas including software and services.

“He was doomed from the beginning,” said Ticonderoga Securities analyst Brian White. “The die was cast for whoever stepped into that position.”

Investors seemed to approve of Whitman, a billionaire who joined HP’s board this year on an interim basis after a failed bid to become California’s governor.

Apotheker, former CEO of German business software maker SAP AG, was a surprise choice to replace the popular Mark Hurd, himself ousted last year after a scandal involving expense reports and a female contractor.

Before Hurd came Carly Fiorina — like Whitman, a candidate for California political office — whom investors blamed for betting on a sunset PC industry by buying Compaq. She was eventually fired by the board.Now, HP is grappling with withering criticism from Wall Street — and a raft of shareholder lawsuits — over recent strategic decisions and the haphazard way in which they have been communicated.

In August, it confounded investors by killing off a much-touted line of mobile devices including the TouchPad and declaring it may spin off its massive PC division. Apotheker also spearheaded a deal to buy British software maker Autonomy that many considered too costly.

The potential loss of HP’s main public face raises questions about those pivotal strategic shifts, and has even triggered speculation the board might do an about-face on some of them.

Especially rankling to investors had been a decision to fork over close to $12 billion for Autonomy, without clarifying how the niche maker of cloud-computing software would fit into or help drive a sprawling empire that spans computers, printers, software and enterprise IT solutions.

“If (HP) fires Apotheker, cancels Autonomy deal, and keeps PC division, it’ll be great for the stock — and every director should be arrested,” outspoken hedge fund manager Eric Jackson said on Twitter in reaction to the news.