Article from ENX Magazine – Strength in Numbers, Ideas: Caltronics Business Systems Leverages Flex Technology Group Relationship to Target Unparalleled Growth
A stockbroker fresh out of college who had brief stints with Merrill Lynch and Manufacturers Hanover Trust, Reilly joined Caltronics, the dealership founded by his father, John, in 1975. The elder Reilly, a New York transplant, had developed the company as a steady, but modest, lifestyle business that was registering $2 million in annual sales by the time Dan Reilly joined the firm in 1986. The son, however, had a bigger vision in mind.
Reilly made his first acquisition, Modern Office Machines, in 1993, and over the next 20 years he added six more dealers in the $3 million to $6 million range. Each acquisition brought new insight to Reilly, particularly in the area of reconciling growth and creating an infrastructure to support it. Many of the top execs from the acquired companies joined the fold, and Reilly was emboldened by their wealth of ideas and creativity that have enabled Caltronics (a dedicated Konica Minolta dealer) to successfully assimilate and widen its scope. The company now covers a swath of the Golden State from Sacramento down to the Los Angeles region, as well as Arizona.
Perhaps Reilly’s boldest stroke came in late 2017, when Caltronics became a part of the Flex Technology Group, backed by Oval Partners of San Francisco. It has set the stage for what Reilly believes will be an unprecedented growth spurt that could top $100 million by the end of 2019, a vast burgeoning from its current $61 million level of annual sales. We sat down with Reilly to discuss how the Flex Technology Group’s wealth of experience and expertise in managed print services will complement his own specializations in production print and solutions to mutually benefit the platform and enable Caltronics to expand its M&A blueprint to dizzying heights.
How is business in 2018?
Reilly: It’s really been great, the economy’s good. We are energized by our partnership with the Flex Technology Group. Ours is a traditional copier model and (Flex) is an MPS model. They’ve brought things to the table that we hadn’t enjoyed in the past, like a robust managed print services model. We have many customers who can benefit from their expertise. On the other hand, we provide expertise in areas such as production print, which accounts for about $3 million to $4 million in business per year. We are working together with our partners to bring best practices and new marketing ideas to each other. It’s working out really well.
What does Caltronics pride itself on?
Reilly: We’ve always felt we are a service company that sells equipment, not an equipment company that will also provide service. To us, it’s all about customer satisfaction, and it is borne out in the long-term relationships that we have with our customers. Another key is that we specialize. We have divisions that specialize in production print, MPS and solutions. Our employees have dedicated their careers to these specific areas, and as a result we execute really well.
In late 2017, you decided to join the Flex Technology Group collective under Oval Partners. What intrigued you about Oval’s value proposition as opposed to other M&A platforms?
Reilly: I knew that in getting involved in a partnership of any kind, there has to be a strong relationship among the people. I felt really good about the Oval Partners group—Jake Mizrahi, John Knoll, Dan Ruhl—smart guys who have been quite successful. We spent time getting to know them and felt comfortable with them on a personal level. I got to know Frank Gaspari and some of our senior executives interacted with theirs. I really felt the culture he built was very similar to ours, which was important to me. They really take care of their people and care about the customer.
When I looked at the reinvestment, it intrigued me. You’re not just selling and walking away; you have the opportunity to stay engaged and be a part of something that’s going to have enormous value down the road. Everyone’s pulling on the same end of the rope. The valuation of our company in the sale itself was not what was most important. I’d done my research and knew that it was a fair value for my company. Honestly, I wasn’t ready to move on and retire. I still have a lot of passion for this business and my company. It’s been a great fit, and the partnership has created a lot of opportunities for my employees going forward, much more than I could’ve given them by staying independent.
We are constantly looking for new and better ways to do business. Every day we ask ourselves how we can improve. It is a constant struggle that we impose upon ourselves.
What do you believe Flex Technology Group brings to the table that will enable you to facilitate growth?
Reilly: They do some things well that we either didn’t do at all or do as well. In some areas, it goes the other way. Our solutions and production print teams are strong, but our managed print services offering is not as robust as Flexprint’s. It was exciting for us to bring new and better solutions to our customers. The relationship has given us a three- to five-percent bump for 2018, but more importantly, we’ve put a lot of things in motion this year that will set the stage for a breakout year in 2019. Introducing new people and processes doesn’t happen overnight, but we’ve had success and a lot of the groundwork has been laid.
In 2013, you added Infincom of Arizona. Tell us a little about how that deal has broadened your market reach.
Reilly: That was our first entry into Arizona. We are a regional company, a lot of our customers are headquartered in California with branches in Arizona, and so it gave us a footprint in Arizona with a small, but strong, company with good people and a fantastic service department. It’s allowed us to service more of our customers directly as opposed to outsourcing it to a third party. That was one of the driving factors in acquiring Infincom.
Will you be pursuing other M&A opportunities that will enable Caltronics to expand its scope?
Reilly: Absolutely. We are actively looking to grow Caltronics organically and through acquisition with the total support of Flex Technology Group and Oval Partners. One of the things Flex Technology Group liked about us is that we have an infrastructure capable of growth. It was built with that in mind long before I thought about partnering. Our platform can expand to $100-$150 million in sales without having to rebuild.
What has enabled Caltronics to establish a stronghold in the California and Arizona markets?
Reilly: Our strength in vertical markets has been a key. We have 20 of the top 25 law firms in our region. Our specialists do a really nice job of understanding the nuances of particular industries. We’ve also excelled in other verticals including school districts, associations, and local and state government. While we do well selling ink on paper, we also thrive in solutions by helping companies streamline their business processes. It took time to develop expertise in these verticals, but over the years we’ve become highly proficient in addressing their needs.
What do you look for in your employees and how do you recruit and retain good ones?
Reilly: There’s a certain energy level one needs to have in order to be successful in a highly competitive business like ours. One of our interview questions asks prospective employees, “Do you love to win or do you hate to lose? How would you characterize yourself?” They are really two different things. Personally, I expect to win, but I really hate to lose. It’s that kind of competitive nature that we’re trying to find. We have a number of former Division 1 college athletes on our staff. They have a competitive nature, are disciplined and understand the value of hard work. But in the same vein, people can demonstrate that same competitive spirit in other ways in their lives. We’re also looking for a strong work ethic. You really need to have the ability and mental toughness to work hard every day and recognize that it’s going to take time to succeed in this business.
Equally as important, a candidate needs to be a cultural fit for Caltronics. We have a competitive but friendly, family-oriented culture in this company. We have second- and third-generation employees. So it is important that candidates fit into that mold.
What was your dealership’s biggest win last year?
Reilly: I’d say it is definitely our decision to partner with Flex Technology Group. We are now part of a dynamic, growing company with unmatched excellence in people and programs. We are so excited about what the future holds for our employees and our customers.
What was your biggest challenge in the past year?
Reilly: We are constantly looking for new and better ways to do business. Every day we ask ourselves how we can improve. It is a constant struggle that we impose upon ourselves. It is not just one thing, it permeates everything we do. If at the end of the year we can look back and say we are better today than last year, then we have done our job.
What are your goals for the next 12-18 months?
Reilly: One goal is to continue to grow organically as well as through acquisition. As I stated before, we have the infrastructure in place to accomplish both. Another is to continue to learn new and better ways to help our customers. That is one of the really exciting things about being part of the Flex Technology Group family. We get to interact and share ideas with the best and brightest minds in our industry. That being said, we need to always keep in mind what has made us a great company for the past 43 years—a focus on customer satisfaction and a commitment to taking care of our employees.
How do you view the industry changing in the future and what are you doing to adapt?
Reilly: Our industry is constantly changing and evolving, and as always, I welcome that. With change comes opportunity for us and our customers. As an industry, we continue to delve deeper into network services, security and electronic document management, just to name a few. Our company has made significant investments in these areas and I feel very optimistic about how those investments position us for future success.
What do you enjoy most about your job? What are your least-favorite aspects of it?
Reilly: The most enjoyable part of my job is the challenge. Every day presents you with new opportunities to improve. I have been really fortunate to have surrounded myself with highly competent people in all aspects of our business. There is no challenge that we can’t overcome. It is extremely satisfying to accomplish your goals with people you really enjoy working with.
As for my least favorite, I would have to say it is my own impatience. I can get frustrated when I see a solution to a problem or just a better way of doing something and it takes a while to implement. I can see the benefit clearly, so I want to implement it as quickly as possible.
Outside of work, what do you do for fun?
Reilly: My family is everything to me. My wife, Colleen, and I have six children, from a junior in high school to a 28-year-old son who’s in the third year of law school. We are very close and enjoy doing things together. When it’s just the two of us, we like to go to the mountains or the beach, walk our dogs and just hang out together. My personal time is spent working out at the gym or on a bike ride.