Lyreco CEO Eric Bigeard tells opi.net what he thinks about rumours that yesterday’s global contracts alliance between the France-based B2B supplier and OfficeMax is the first step to a takeover of the US company.
When it became clear that Staples was going to acquire Corporate Express earlier this year, Eric Bigeard was forced to rethink Lyreco’s US strategy.
It was obvious that the 15-year relationship that the leading European B2B supplier had enjoyed with its US partner could not be sustained once Staples became a main rival for Lyreco in Europe, a fact confirmed in this month’s Big Interview with Ron Sargent in OPI magazine.
With a blank piece of paper on which to redefine Lyreco’s US strategy, there were a number of options open to the wily Frenchman – look for a new partner along the lines of the Staples agreement, acquire an existing player in the US market, start Lyreco USA from scratch or even simply turn his back on the US market altogether.
The last two possibilities, it has to be said, were non-starters; starting greenfield operations in the US would be a monumental and totally unrealistic task, while ignoring the US altogether would mean turning down the chance to add to Lyreco’s top line – the relationship with Staples brought in contract sales of €100 million ($138 million), Bigeard confirmed. By no means a number to be sniffed at.
"We were in no hurry to make a decision and we looked at all the different possibilities", said Bigeard, without wishing to go into greater detail.
However, it would be fairly safe to assume that he looked at going down the acquisition route, possibly making a bid for Max itself or investing in one of the larger independents – WB Mason, MyOfficeProducts, for example – before finally opting for the partnership strategy.
And he’s probably made the safest and wisest choice.
Firstly, the Staples partnership worked well for a number of years and Lyreco is bound to have developed a model for the servicing of these types of contracts that it can adapt easily to work with OfficeMax. True, it is doubtful whether the potential top line gains with Max can reach the €100 million mark achieved with Staples, but extra capital expenditure required for servicing the contracts is minimal, so bottom line gains will be attractive.
Secondly, as Staples tackles the Corporate Express integration, Lyreco will not be taking its eye of the ball with its own integration issues. It can focus on its core European markets, its fast-growing start-ups in Eastern Europe and its developing Asian operations.
When opi.net asked for Bigeard’s reaction to suggestions that this new alliance was the first step to Lyreco acquiring OfficeMax, he flatly denied that there was a hidden agenda behind the agreement and insisted that the new alliance is designed to work in the same way as the previous agreement with Staples. Taking on OfficeMax would be a huge gamble and, over the years, that has just not been Lyreco’s style.
That said, the two countries – Canada and Australia – where both Lyreco and Max currently operate, could provide Lyreco with a couple of potential acquisition opportunities and Bigeard is much more likely to cherry pick these two businesses rather than go anywhere near a full-blown buyout of Max. Lyreco has recently upgraded its distribution facilities in Canada and could realise worthwhile synergies by swallowing up Max’ Canadian operations, while an Australian acquisition could jump start Lyreco’s attempts to gain a better foothold in a market where it has struggled to make a significant impression.
Thirdly, by siding with OfficeMax, Bigeard has dealt a blow to one of his European rivals, the office supplies alliance EOSA, whose largest member office2office is a serious competitor of Lyreco’s in the UK market. The main beneficiary in Europe of the EOSA-OfficeMax agreement – which was originally signed four years ago by the then Boise and Ahrend organisations – is now o2o and Bigeard will enjoy ‘getting one over’ on his rival.
For its part, EOSA said that it regretted OfficeMax’ decision to end their arrangement, but that it would "honour this commitment, providing the excellent levels of service these customers are accustomed to".
Admittedly, the writing had been on the wall for the EOSA-OfficeMax alliance once Lyreco became a free agent and was able to offer the US supplier greater European and international potential.
Speaking to opi.net, o2o’s CEO Simon Moate said that, even though there had been no forewarning, he was not surprised by the news and that he expected the impact on o2o to be "minimal".
OPI understands that the five pan-European contracts that are covered in the EOSA-Office Max alliance represent sales of approximately €1 million for EOSA’s members, about half of that for o2o.
"Our understanding is that the existing contracts will run their course," said Moate, who added that most of them were in their infancy.
"The important thing for us is that EOSA is still intact and functioning, and we will be looking at ways of developing our relationships further at a members’ meeting in November."
Turning back to Lyreco, this alliance represents a sound strategic decision, taken at a time of global economic uncertainty. It probably won’t last 15 years, but Lyreco has shown the ability to adapt before, and will probably do so again.