kon Office Solutions Inc. has spen
t the last year gobbling up IT service providers in a mission to transform itself from a company known mostly for its copy-machine services into a full-fledged systems integrator.
"Copier technology has become digital, and so now it's a network game," says Darl McBride, Ikon's senior VP of technical services. McBride joined the Valley Forge, Pa., company two years ago after eight years at Novell in a number of executive posts, including his last as VP and general manager of the external network division.
Ikon's goal is to grow to a $10 billion integrated office-solutions provider by the year 2000, with approximately $2 billion of that revenue coming from systems integration, IT training, and software development services, says McBride. Right now, Ikon is a $4 billion company, with only about $500,000 of that coming from IT se
rvices, he says.
Since last July, Ikon has acquired 30 IT services firms, 19 of those affiliates of USConnect, a Stamford, Conn., chain of IT service companies. "We've been buying companies with pockets of expertise and are expanding that on a national scope," McBride says.
On June 19, Ikon informed Wall Street that its earnings for the third and fourth quarters, ending June 30 and Sept. 30, respectively, would fall below analysts' estimates. The company attributed the decline to "business transformation" charges-an additional $50 million to $75 million next year.
Still, Ikon expects to see 20% earnings growth in 1998, excluding the transformation costs, which are related to consolidation of operations such as customer-service centers, inventory control, logistics, purchasing, and other activities. The transformation has put a strain on sales growth in the company's traditional copier business. But the buying spree will likely continue during the next year, McBride says.
Growth Opportuniti
es
Two of last year's USConnect acquisitions have led to significant opportunities for the growing firm. The first involves a service deal with Fleet Mortgage, a Columbia, S.C., unit of Fleet Bank. The deal calls for Ikon to provide Fleet Mortgage with new client-server mortgage rate applications.
The deal with Fleet, for which terms were not disclosed, "is significant and, most important, will lead to other relationships with the bank," says McBride.
For Ikon, "having a foot in the door with customers like Fleet, through its acquisitions, helps," says Craig Symons, an analyst in the Westport, Conn., office of Giga Information Group. "Unless there was a predecessor relationship with a large customer, selling new services to those customers is more difficult."
The second opportunity for Ikon is a wireless service for which it is providing the middleware and applications for handheld devices. Through an expansion of services that had been offered by a USConnect affiliate in Tucson, Ariz.,
that Ikon acquired last year, Ikon will soon announce a variety of wireless services, including applications and product packages that allow mobile users of pagers, palmtops, other handheld devices, and notebook computers to have remote access to E-mail, faxes, and the Internet.
Ikon's primary target for its technical services, including the new wireless offerings, are organizations with 100 to 1,000 computing seats, says McBride. "We'd like to be known as the EDS of the midlevel," he says.
But Ikon's ambition to be a significant player in the systems integration business will be a challenge. "This is a tough business to break into, but there is a great deal of opportunity," says Giga's Symons. Because of its acquisition strategy, Ikon needs to concentrate on smooth and consistent performance, Symons adds. "They need to formulate a strategy for how to bid for business and then provide services consistently on a larger scope."
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kon Office Solutions Inc. has spen
t the last year gobbling up IT service providers in a mission to transform itself from a company known mostly for its copy-machine services into a full-fledged systems integrator.
