Lexmark Agrees to Takeover by Chinese Consortium

Global economic uncertainty has led to a stalled tech IPO market and decreased merger and acquisition activity overall, but enterprise IT’s continuing shift to cloud computing and increased customer demands for analytics and as-a-service offerings mean M&A deals in corporate technology are still happening at a healthy rate.

Lexmark (LXK), the printer giant that began as IBM’s low-end desktop printing division and announced last year it was exploring strategic alternatives in light of plummeting stock prices, announced a merger agreement with a China-based consortium on Tuesday. The company has been aggressive in its attempt to move beyond hardware, including a $1 billion acquisition of software provider Kofax in 2015. That deal left Lexmark with a significant amount of debt that revenues have yet to offset.

Lexmark’s situation mirrors, on a smaller scale, that of its former parent company. IBM announced its lowest revenue in 14 years yesterday as it struggles to execute a pivot from hardware giant to solutions provider.  Other industry leaders with strong roots in printer hardware are facing similar struggles, as reported in the Wall Street Journal. Revenues from HP Inc. (HP) dropped a quarter for the three months ending in January, and Xerox’s sales have been in a steady decline for years.

Apex Technology, a Shenzhen-listed seller of printer cartridges, is leading the Lexmark takeover together with private equity fund PAG Asia Capital, one of Asia’s largest private equity firms. Also in the consortium is Legend Capital, a division of Legend Holdings, which is one of the largest diversified holding operations in China (as well as being Lenovo’s biggest shareholder). The merger is the latest example of Chinese-led M&A activity attempting to combat slow domestic markets, coming just two months after Ingram Micro’s announcement it was being acquired for $6 billion by Tianjin Tianhai, a division of Chinese conglomerate HNA Group.

Though Lexmark shareholders may feel lukewarm about the selling price, the deal holds interesting potential. Last year, a state-owned Chinese fund invested over $77 million in Apex as part of a broader effort to support China’s semiconductor industry. And Legend’s experience in the U.S. tech market via Lenovo should help the group navigate any regulatory hurdles.