Investment by North Carolina firm design to drive Bloomington’s Delphax Technologies

An Article by the Star Tribune

by Neal St. Anthony


Delphax Technologies, then a black-and-white printing systems designer and manufacturer, essentially went dark in 2008, amid the Great Recession and lagging performance.

The Bloomington-based company delisted from the Nasdaq stock market.

The stock was a hot item for awhile in the 1980s. Delphax went public as Check Technologies, a printer of checks for the banking industry. But it was eclipsed by bigger players.

The company was renamed Delphax after it purchased the Delphax printing system of Xerox in 2001. Then-ailing Xerox was shedding ancillary businesses. And Delphax moved its operations to Toronto in 2003, headquarters of the Delphax business.

CEO Dieter Schilling, a longtime company operations manager who the board appointed the boss in 2006, moved the company back to Minnesota and drove the delisting to avoid the rising costs of being a public-reporting company.

That also reduced pressure for quarterly profits as Schilling set about deliberately retooling Delphax, which was just treading water, on a next-generation product line.

Since 2009, Delphax has committed virtually all of its cash flow on $20 million-plus in annual revenue to a next-generation color printing system that essentially has been a bet-the-company investment.

And Delphax, which employs about 80 people, has operated under the radar until now.

However, on Monday, Delphax will announce a $3.5 million investment by a North Carolina company whose CEO has Minnesota roots. Schilling says the cash infusion will give Delphax the working capital to ramp up production and marketing of its new Elan series of printing systems that already has some customers.

“We want to be a profitable, $60 million-to-$80 million company [within five years],” Schilling said.

Schilling retained Sima Griffith’s Aethlon Capital, a 25-year boutique investment bank that works with restructuring and expanding companies of up to $100 million in revenue.

The investor is North Carolina-based AirT Inc., a cargo-and-equipment services operation that also functions as an investment vehicle for CEO Nick Swenson.

AirT has a market value of $60 million and earned $3.1 million on revenue of $60 million during the six-month period ended Sept. 30.

Swenson declined to be interviewed last week before the Monday announcement. He is a Minnesotan who worked for a couple of years at Piper Jaffray, and for 15 years as an analyst and portfolio manager at Twin Cities hedge funds Whitebox Advisors, headed by Andy Redleaf, and Varde Partners, headed by George Hicks.

Swenson, through AirT, is one of the largest investors in Twin Cities-based Insignia Systems, a marketing services firm for retailers valued about $40 million.

Schilling said AirT’s inaugural $3.5 million investment is for a minority stake in Delphax.

That could become a majority stake in the printing company if Swenson chooses to exercise rights he gets as part of this deal to buy more stock over several years.

“With this financing we are ready to compete in the market for high-speed inkjet printers,” Schilling said.

Delphax, a thinly traded stock on the local over-the-counter market, is valued at less than $2 million.

It still has more than 250 hopeful shareholders. And Schilling is betting on the Elan series printers to drive sales and value in the company. The Elan 500, the first machine of which was sold in 2014, is marketed as a high-speed, vibrant-color inkjet printer for small-to-midsized publishers, direct-mail marketers and other customers. It is priced about $600,000 per machine, compared with $750,000 for the HP Indigo 7000 and up to $2.2 million for products made by Xerox, Konica Minolta and others.

“The middle-market customers, the $3 million-to-$10 million [revenue] printing companies, can’t afford what companies with up to $100 million in revenue can afford,” Schilling said. “That’s our market. And some of them will eventually buy two Elans.”

The Elan equals or exceeds the more expensive machines of larger competitors because of its quality, reliability and innovation, Schilling said.

The Elan 500 costs less partly because Delphax avoided the expense of developing its own permanent printing head. It licenses replaceable heads more economically for its Elan product from industry-leader Memjet of San Diego. And Delphax shares in customer revenue with Memjet on sales of replacement printheads and ink.

Schilling said Elan customers so far include CompuMail of Concord, Calif.; National Print Portfolio of Quebec, Canada and Primedata of Ontario, Canada.

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