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November 1998

As the leader of a publicly held company with a strong global influence and more than $50 million in sales, Michael Cunningham has positioned himself as a power broker in the graphic arts industry. But not too long ago, he was just a broker—worried about going broke.

Throughout most of the '80s, Cunningham earned his living selling printing for two companies. One of these companies handled Cunningham's primary business: research reports. It was a good arrangement, until the late '80s. That's when the company decided printing this type of work wasn't profitable enough.

At first, Cunningham looked for a new company to print the reports. It wasn't easy. Research reports can range from two pages to 500, and turnarounds can be six hours.

Unable to find a printer that could handle this work efficiently, Cunningham launched his own company. In 1989, he opened up an 11,000-square-foot facility in Jersey City, NJ, hired 10 employees and invested in a four-color sheetfed press.

Cunningham Graphics still maintains headquarters in Jersey City but, other than that, the company bears little resemblance to the shop Cunningham established a decade ago. Today, Cunningham Graphics employs more than 500 workers spread across five facilities: a 120,000-square-foot operation in Jersey City, two plants in New York City adding up to 40,000 square feet, and another two in London that combine for 30,000 square feet.

These five locations provide publications, directories, mutual fund work, on-demand printing and commercial jobs using an assortment of web offset, sheetfed offset and digital presses. And, remaining true to its roots, Cunningham Graphics continues to print research reports.

"We are the world leader in research for the equity and fixed income markets," Cunningham says.

He acknowledges that customer support has allowed his company to grow. "We've been really blessed with some great clients," Cunningham says. "They've taken us at our word, and they've taken a lot of chances with us."

And for good reason. Instead of investing in new equipment, then looking for work to fit the subsequent services, Cunningham Graphics has tailored itself to fit its customers' needs. "We make capital decisions with clients," reveals Gordon Mays, executive vice president. "We see where their work is going, and then we develop our systems around that."

Building the Perfect Team

While customer support has been crucial to Cunningham Graphics' rapid ascent, Michael Cunningham—who serves as president, chairman and CEO—also credits his managers for making the company what it is today. "The more I've delegated," Cunningham says, "the more I've realized that our key managers make real good decisions—better decisions than I would make in the line of fire."

One of the first managers Cunningham selected was Mays. Back in the '80s, Mays competed with Cunningham for different accounts. That all changed when Cunningham became a manufacturer. Mays, who admired Cunningham's move, got to make the move himself when Cunningham invited him to become a partner in the new company.

Another key player is COO Robert Needle, a former client. "Robert realized we were the best at what we did," Cunningham says, "and he wanted to join a winning team. We also realized that he was the best at what he did."

Rounding out the Cunningham management team is CFO Robert Okin, the latest addition. Okin came on board shortly after Cunningham Graphics' IPO in April.

A third generation printer with 25 years of experience, Okin is an expert in the area of M&As—and gaining capital for acquisitions was a driving force behind the IPO.

"As a private company, we couldn't afford Bob Okin and his expertise," Cunningham admits. "But when he decided to take the company public, we decided that we couldn't afford not to have him."

As Okin's hiring proves, Cunningham Graphics' publicly held status provides a powerful perk for drawing top talent. Specifically, the company can now lure potential staff with stock options.

New employees aren't the only people benefiting from Cunningham Graphics' IPO. Employees hired on or before Dec. 31, 1997, received a certain amount of stock options for every year with the company. This has made a difference.

"The day we went public, you could feel the energy in the company," Cunningham recalls. "Everybody was walking around a little bit faster. They were turning out the lights when leaving different departments. They were producing work much more efficiently."

Cunningham opened its stock at $13 per share. It never saw $13. When trading began, the share price immediately jumped to $18. Stock peaked at $21 per share and, at press time, was trading at $14.

Cunningham, who notes that his company is not immune to overall market conditions, is upbeat about the stock performance. "On a percentage basis, if you look at all the IPOs that were done in April, we're probably at the top of the heap for keeping our value," he says.

Cunningham began making his plans for the IPO two years ago, following the lead of other industry consolidators. "We owe a lot to Joe Davis at Consolidated Graphics and to [Gerald] Mahoney at Mail-Well," he says. "We saw what they were doing, and it looked very promising. We thought we could do it a little different. We wanted to build the company through organic growth as well as acquisition growth, which would be specialized growth. We wanted to go after niche players and companies that complement what we do, not just general commercial printers."

A British Buyout

The first company Cunningham Graphics went after was Roda Ltd., a London-based financial printer. Cunningham Graphics bought out Roda for $8 million six days after the IPO's completion.

Cunningham Graphics and Roda shared a partnership long before the acquisition, however. The two companies—along with Workable, a Hong Kong financial printer—were all part of World Research Link, a business network that Cunningham Graphics developed five years ago to strengthen its position in the research report market.

By establishing the World Research Link, Cunningham Graphics was able to compete against larger, global printers. ISDN and T-1 lines tied Cunningham Graphics, Roda and Workable together. The three partners also standardized their service and equipment so all clients received the same treatment.

"We calibrated our software and our output devices, so that we were truly handling files the same way," Cunningham says. "Even the way we handled the customers—the way we answered the phone, the way we billed—was done the same way. We acted as one company."

Roda won't be Cunningham Graphics' last acquisition. Even so, it's questionable Workable will be the next. While Cunningham speaks highly of the Hong Kong company, the Asian economy makes the Far East a risky place to invest now. "It's a shaky market," Cunningham notes, "but we're looking forward to the day when we can add Workable to the team."

Asia may be closed right now, but many other markets are wide open. "We're looking at acquisitions both domestically and overseas," Okin says. "We want companies that complement what we're doing and also give us some diversification."

According to Okin, Cunningham Graphics' acquisition strategy consists of three parts. The first is purchasing standalone operations, such as Roda. The second part covers what Cunningham calls "tuck-in" acquisitions; these are acquisitions where Cunningham Graphics absorbs—or tucks in—companies into its existing facilities.

In Manhattan, where realtors are forcing out manufacturers, tuck-in acquisitions are booming for Cunningham Graphics. With nowhere else to turn, printing companies that lose their leases can liquidate their assets by selling equipment to Cunningham.

The final part of the acquisition strategy is taking over in-plant printing operations. By buying out corporate in-plants, Cunningham Graphics strengthens relationships with clients, generates additional revenues, adds more equipment and gains new talent.

"Many of these shops have good employees, but in some respects they are limited because they work within a graphic arts department at an investment banking firm, for example," Cunningham says.

When Cunningham Graphics shuts down an in-plant, it gives the in-plant's employees an opportunity to grow. "We're making job offers to 85 percent of the employees," Needle says, "and approximately 65 to 80 percent will accept."

The latest employees to accept this offer came from in-plants at McGraw-Hill and Schroder & Co., a New York financial company. Money raised through the IPO made these in-plant buyouts possible. The IPO also allowed Cunningham to upgrade Roda's technology. In the states, Cunningham Graphics invested in two large-format Purup-Eskofot imagesetters, two Mitsubishi Imaging direct-to-plate machines and an automated Wohlen- berg perfect binder, and added a second six-color Heidelberg press.

Thanks to the IPO, Cunningham Graphics now operates 20 presses in London and 30 presses in the United States—ranging from one-color sheetfed offset presses to non-heatset web presses. Still, the IPO has given the company more than new equipment, more than new facilities. The public offering has given the printer a fresh outlook.

By becoming a publicly held company, Cunningham and his staff got to see their organization through an investor's point of view. And, as things turned out, they were accustomed to the sight.

Investors expect Cunningham Graphics to maintain predictable and sustainable earnings, and the company has a history of matching its business plans to the penny. That's because Cunningham Graphics has always done its best to demonstrate its financial health to customers. The customers, in turn, have helped the company remain strong.

"Eighty percent of our billing is contractual," Mays says. "That's a positive thing. We're somewhat immune to the transactional up and downs of the print market."

Good thing, too. When you're a publicly held company, you never want to go down.

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