What’s next for Kodak Alaris after Kingswood Capital acquisition?

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By Ralph Gammon, Senior Analyst at Infosource

Kodak Alaris, a global leader in document scanners and Capture software, has been acquired by Los Angeles-based private equity firm, Kingswood Capital. The deal is the culmination of an initiative  to sell the business, announced by the UK’s Pension Protection Fund (PPF) in April 2023.

Kingswood, which recently raised a $1.5 billion fund and now has more than $3.2 billion in total assets under its management, focuses on buyouts of middle-market businesses, where it seeks to improve operations.

Kodak has been a long-time leader in production scanner sales, placing in the top three in all three of Infosource’s production segments in 2023, including leading the global market in high-volume production (rated speeds  above 150 pages per minute and priced  above $30,000) sales.

Kodak Alaris, which reported $496 million in revenue for its fiscal 2023 (ended March 31, 2023), consists of two businesses:

  • Alaris – Markets and sells document scanners and services and Capture & IDP software.

  • Kodak Moments – Sells photo products and services, including photo printing kiosks, typically deployed in retail locations.

Kodak Alaris’ 2023 revenue numbers represent a 3% decline over fiscal 2022, with Kodak Moments growing 6% and Alaris declining 16%. Kodak Moments generated around two-thirds of the Kodak Alaris revenue compared to one-third for Alaris. Gross profit and adjusted EBITDA were also down, with Kodak Alaris reporting a $33 million after-tax loss.

The right time to sell

PPF had assumed control of Kodak Alaris in 2020, taking over from the Kodak UK Pension Plan (KPP2) in 2020. KPP2 had acquired the components that make up Kodak Alaris in 2013 as part of a bankruptcy settlement with Eastman Kodak. PPF’s mission is to ”protect pensioners when the company they worked for becomes insolvent.”

 

According to a statement from Kodak Alaris, the company “has performed well, and PPF has decided that now is the right time to sell the business. This is normal practice for pension scheme assets taken over by the PPF.”

The price Kingswood paid for Kodak Alaris was not announced, but historically the firm has typically invested in the range of $50 million to $150 million in its acquisitions, targeting companies with at least $100 million in revenue (regardless of EBITDA). It has made larger investments, often related to co-investments by a management team.

The entities that were combined to make up Kodak Alaris—Document Imaging (the basis for Alaris) and Kodak Personalized Imaging (the basis for Kodak Moments)—were originally acquired by KPP2 in a deal valued at $3.5 billion. At the time, DI was generating approximately $400 million in annual revenue, with Personalized Imaging (parts of which have since been sold off) generating more than $1 billion annually.

What does the sale mean for Alaris?

For several years, there has been speculation that the two businesses may be split up, as aside from their shared heritage and Rochester, New York, offices, Kodak Moments and Alaris have little in common. Kingswood’s current portfolio has a strong retail component, which would align with the focus of Kodak Moments.

Kingswood’s other main focus is around industrial services and Alaris could potentially slot in there, or the equity firm could look to sell Alaris to a scanner or printer vendor. Alaris’ strength in production scanners and software could make it attractive to a vendor like Brother or Epson, that is stronger in the distributed scanner segments and looking to expand upstream, as well as possibly add a Capture and IDP software component. Printing vendors like Sharp, Toshiba, and Konica Minolta are already selling Alaris products through partnerships, so an acquisition could be a potential next step.

ibml, which focuses on the very high-speed production segment, has often been talked about as possible destination for the Alaris business. Alaris currently serves as ibml’s primary reseller and service provider outside North America and a combination of the two companies would create a clear market leader in the high-volume production segment. Last year, ibml moved to increase its leadership in the very high-volume production space with the acquisition of the legacy BancTec scanner business from Exela.

It’s uncertain when and if Kingswood will make any changes to the Kodak Alaris business, but they have overseen some fairly rapid turnarounds in the past, including the acquisition and sale of a contact center solutions provider within a year, and a two-year turnaround time for a chain of grocery stores. “We are excited to help continue Kodak Alaris’ strong recent performance and momentum,” said Alex Wolf, managing partner of Kingswood.

An attractive investment

The bottom line is that Alaris is an important and influential entity in the Global Capture & IDP market with a lot of value related to its product line, install base and partner channel. It remains a leader in the higher-margin production scanner segments that also often include valuable service contracts.

While Alaris cited multiple factors for its revenue decline in fiscal 2023, it had projected that demand for high-speed scanners would recover in its fiscal 2024. While the company has not yet issued a fiscal 2024 report, Infosource data shows Alaris with greater than 15% growth in unit sales of production scanners in the 12 months that would make up that time period (ended March 31, 2024).

In addition, over the past few years, Kodak Alaris has made significant investments in Alaris’ Info Input IDP business and has seen strong growth in its software and solutions practice. This should help in its efforts to diversify from primarily selling hardware, where it is competing in a market that in recent years has come under increasing price pressure due to improved performance of lower-cost units.

So, despite the recent revenue decline, it seems that Kingswood is acquiring an attractive business, with a strong brand and market share in some lucrative segments. Hopefully, the equity firm’s resources, both in terms of capital and operational expertise, can assist in driving a strong future for the organization.

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