CGX's M&A Criteria -- Wanted: Industry LeadersOctober 2008 By Jim Cohen
For example, in the last year and a half alone, we have acquired companies with more than $320 million in revenues, increasing sales at Consolidated Graphics by 33 percent during this period. And what is most exciting about all of this activity is that we have maintained our traditional discipline and have only acquired commercial printing companies that are generally recognized as industry leaders: Annan & Bird, The Hennegan Co., Pikes Peak Lithographing, Cyril-Scott Co. and PBM Graphics, for example.
My goal has been to identify the best companies and proactively approach them, but I also learn of opportunities through intermediaries or directly from the owners themselves (there is an e-mail link to the M&A team from our Website).
The purpose of this article is to shed some light on what Consolidated Graphics looks for in acquisition candidates. But before I describe the generic characteristics of attractive printing companies, it will be helpful to first share a little background on some of our recent acquisitions because these companies share many of the characteristics that we look for generally.
In the case of Annan & Bird, for example, in Toronto, I had heard good things about their large-format capabilities. I was in Toronto looking at another business and decided to call John and Dave Bird, the two brothers running the business who also represent the second generation of owners. Annan & Bird does high-quality packaging and point-of-purchase, large-format printing on five presses ranging from 57? all the way up to 81?. Interestingly, for a Consolidated Graphics company, they don't even own a 40? press.
This company was attractive to us because it was highly profitable and operated in a niche (large-format packaging and POP), which we knew would be attractive to our 650 salespeople and 22,000 customers. It also isn't a cliché to say that it's all about management. With the Birds, for example, I knew early on that the cultural fit was ideal.
In the case of the Hennegan acquisition, I first reached out to the Ott family soon after I started at Consolidated Graphics because it didn't take long for me to figure out that they were running one of the highest quality printing companies in the United States (500-line screen, anyone?). What I really liked about Hennegan, aside from their stellar reputation and first-class customer base, was the fact that it was founded in 1886 and was being run by the fourth generation (Bob Ott Jr.).
Family Owned Businesses
Many of the companies that we buy are multi-generational family businesses, so Hennegan's history was something we could appreciate and understand. In my initial discussions with the Otts, I became even more interested as it became clear that they were committed to participating in Hennegan's future after the transaction was completed. Today, almost two years after the acquisition, not only is the fourth generation still leading the company, but the third generation (Bob Ott Sr., who is 85 years old) still works full-time and sells several million dollars worth of print.
The Cyril-Scott acquisition, like Annan & Bird, was a little different for us in that the company did not look like our typical acquisition (a commercial printing company with web/sheetfed/digital capabilities producing mostly marketing materials). Instead it had a specialized niche (direct mail) that we knew our 70 sister companies could cross-sell. The attraction here (and it was a favorite of our CEO's) was that Cyril-Scott was, in our estimation, the most sophisticated direct mail printer in the country (with 18 in-line webs that print, diecut, fold, glue and personalize--all in a single pass, often in patented formations).
Cyril-Scott can print from 200,000 to 40 million pieces and deposit them directly into the mailstream to be delivered within 24 hours to 80 percent of the U.S. population. These unique capabilities, coupled with their strategic location, made Cyril-Scott a very good fit for us.
Pikes Peak, too, was a little different because it is a large-format commercial printer, with no 40? sheetfed, web or digital presses. The business was attractive to us primarily because it had a reputation for high-quality graphics (from snowboards to museum-quality maps), and it provided us with additional large-format capacity in the western part of the United States.
PBM Graphics, operating in approximately 600,000 square feet of space over three locations, is our largest acquisition to date. PBM was appealing because it had a diversified commercial printing business that looked similar to our own, but also had a few niche businesses that were attractive (packaging, pharmaceuticals and collectible trading cards). I reached out to Terry Pegram on different occasions because I was familiar with PBM's success and tremendous growth (profiled in this magazine, as a matter of fact).
Stepping back from the specifics of these recent transactions, what is it that Consolidated Graphics looks for more generally? While there are no hard and fast rules, we tend to look for the following:
o Revenues in excess of $10-$15 million with a track record of profitable growth, as well as the prospect for good future growth. The exception is smaller companies that we "tuck-in" to existing facilities; they typically make less than $10 million and may or may not be profitable.
o Superior leadership that ideally will be willing to continue running the business on a decentralized basis after the acquisition is complete. Cultural fit is very important.
o Strong reputation in the local marketplace.
o Loyal and diverse customer base, ideally one to which we could also cross-sell.
o Web, sheetfed and/or digital capabilities targeting the same segment of the commercial printing industry as Consolidated Graphics (a $50 billion industry). Niches, however, that we are not in can be attractive if they involve products that our salespeople can readily cross-sell.
o History of investment in the business. Is the technology current?
Like most buyers, we review financial information and other objective data, but I tell potential sellers that only half of our analysis is financial/operational, while the other half is assessing the cultural fit of the owners and the management team within Consolidated Graphics.
Evaluating the physical plant, workflow, customer base and environment is important, but just as important is assessing the integrity of the sellers and their management team, their objectives and their prospects for success within our own organization. Do they care about their employees? Are they interested in preserving the legacy they have worked so hard to build?
Will the owners work with our 70 other company presidents and get engaged in strategic sales, CGX-Solutions and cross-selling with our sister companies? Will they help educate our 650 sales reps about their company? Will their own sales reps be interested in selling the strength of our national footprint and the offerings of our 70 other companies, including the digital network and our proprietary online storefront technology? Will they participate in our Leadership Development Program and hire bright young college graduates into their shops each year, and put them through our three-year training rotation?
These are important questions that are difficult to answer, but the success of any acquisition largely depends on our ability to do so. PI
About the Author
Jim Cohen serves as executive vice president, Mergers & Acquisitions, at Consolidated Graphics in Houston. He can be reached at firstname.lastname@example.org.