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Compass Report--The State of M&A

May 2000

(Editor's Note: Harris DeWese is a principal at Compass Capital Partners and an author of the annual "Compass Report," the definitive source of information regarding printing industry merger and acquisition activity.)

Most of you are busy managing independent, privately held printing companies. Some of you lead large, public printing companies. A handful of you run a company you redefined as being in the "communications industry," though presses throb a few steps from your door. Others work to prepare an e-commerce printing Website for an IPO—occasionally dabbing saliva from their chins.

For all of you who are very busy and have little time for reading, here is the Executive Summary from "The Compass Report—2000."

Printing industry consolidation activity slowed dramatically in 1999; only 131 deals were completed vs. 184 deals during 1998, a decline of nearly 30 percent. However, a few very large deals pushed total consideration to a record high of $5.3 billion.

Total sales from the deals also increased to $4.9 billion, attributed primarily to Quebecor's purchase of World Color and AGT's acquisition of Wace. These deals accounted for more than $3.0 billion in consideration and about $2.4 billion in sales. When excluded, total consideration declined more than 40 percent.

The mean public company valuation (market capitalization) declined by 25 percent and by a median of 22 percent. With public company valuations much lower on Wall Street, these buyers are unwilling to pay as much for their private company targets. Therefore, valuations have declined approximately 20 percent since 1998. The range of EBITDA multiples for private companies has declined from 4 to 6 times in mid-1998 to 4 to 5 times presently. As always, there are exceptions to these ranges. There are never hard and fast valuation practices; when steely-eyed analysts are calculating, beauty is in the eye of the beholder.

There are far fewer active buyers (consolidators) for private companies. Where 1998 was a sellers' market, 1999 evolved into a buyers' market. Some of the consolidators have integration indigestion. Others have taken to their beds with severe pain. One or two may not survive.

Wall Street, enamored with dotcoms and tech stocks, has turned its back on the printing industry.

The printing industry is not telling a good story. The excuses for some failed quarterly earnings reports sound like the student whose dog ate his paper and the teacher knows the student doesn't have a dog.

On the other hand, most segments of the printing industry are growing faster than the GDP and the Internet is generating new print sales.


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