Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Printing may be dying in the West but it remains alive and well in China, as befits the inventor of the technology. Paper still confers the mark of authority across much of Asia, where official chops and the fax machine remain in widespread use.

Viewed from that perspective, the purchase of Lexmark by a Chinese consortium is a natural development. The U.S. printer maker has agreed to sell itself to a group led by Apex Technology, a Chinese maker of ink cartridges, in a deal that values the company at $3.6 billion including debt. Asian private equity fund PAG Asia Capital and Legend Capital Management, the venture arm of Lenovo's parent, are also among the buyers.

Lexmark has fallen on tough times as the trend toward digital documents erodes demand for printing products. The Lexington, Kentucky-based company said in October it hired Goldman Sachs to explore strategic alternatives.

The $40.50-a-share offer price is a 17 percent premium to the last close. That still looks cheap. Lexmark stock trades at about 10.6 times last year's earnings per share, while the business is valued at an undemanding 5.2 times enterprise value to forecast 2016 Ebitda, according to data compiled by Bloomberg.

By contrast, Apex was on a P/E of 77 times as of Feb. 18, when the stock was suspended from trading in Shenzhen. The company's enterprise value to Ebitda ratio averaged 52 times last year.

Eyes on Printing
While sales are falling, Asia-Pacific has a bigger share of the global market for printers than the U.S.
Source: Euromonitor

That gap is no accident. Lexmark is based in a market where DocuSign and Adobe Systems's EchoSign digital signature systems have pretty much done away with the need to print, sign and fax documents for everything from mortgage applications to tax returns.

The acquisition will open doors for Lexmark into the more promising Chinese market. Lexmark Chairman Paul Rooke said the transaction would benefit customers and provide ``new opportunities'' for employees. Apex is controlled by Zhuhai Seine Technology, which also owns Pantum International, China's first maker of printers.

Lexmark derived 46 percent of revenue from the U.S. in the fourth quarter. Attempts to diversify into software services for businesses have failed to stem its decline, as the move to mobile and away from desktop computers hurts printer sales. The company has posted losses in four of the past five quarters and said in February that it was cutting 550 jobs, or about 4 percent of its workforce.

Rising
Chinese printer-maker Ape Technology's revenues are rising (yuan)
Source: Bloomberg
... and Falling
Lexmark's sales have declined because of waning demand for printers
Source: Bloomberg

The presence of Legend's venture capital unit renews Chinese interest in IBM's legacy businesses. Lenovo, the country's biggest personal computer maker, came to worldwide prominence when it bought IBM's PC division more than a decade ago. In 2014, the company also acquired IBM's low-end server unit. Lexmark was IBM's desktop printing unit until a private equity firm bought it in the early 1990s.

Those parallels suggest Lexmark could be the latest Western company in a shrinking industry to find a new lease of life in the Far East under Chinese ownership. The main hurdle will be approval from the Committee on Foreign Investment in the U.S., or CFIUS. Given the low-tech nature of the printer business, that should be a formality, though an election year and the aborted sales of Philips' Lumileds LED business and a stake in Western Digital caution against complacency.

The Chinese buyers won't feel confident until they have the approval in their hands -- by hard copy, with an official chop, of course.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net