M&A’s Class Struggle

James Cohen, executive vice president of mergers and acquisitions for CGX.

John Hyde, senior vice president of NAPL.

“Both of these deals were accomplished at bargain values, so the investments were modest for mega firepower…It also would not surprise me to see either Quad or Donnelley make a run at Brown Printing if they can get it past Hart-Scott-Rodino.”

James Cohen, executive vice president of mergers and acquisitions for CGX, says that while the big deals didn’t illustrate any industry trends per se, he does feel these moves indicate some bullish attitudes toward the future.

“It’s not likely that we will see more mega-deals today solely because a few have occurred already. That might be the case for a company that felt particularly threatened by one of the mega-deals.”

Indeed, the larger print community at times seems to harbor subtle resentment toward the attention that is sometimes thrust upon the industry transactions with the head-turning price tags. These sales, they argue, cast an unrealistic light on what the majority of companies are enduring. John Hyde, senior vice president of NAPL and a consultant with 20 years of experience, feels the top-end moves aren’t indicative of what’s at play for 90 percent of the printing industry.

Citing NAPL research, Hyde notes that 90 percent of the industry’s members are “treading water or worse.” While the top 10 percent are traded as going entities based upon EBITDA, the balance are primarily sold based on their underlying assets.

“For most companies, the asset that has the greatest value is the general intangibles—the customer relationships,” Hyde adds. “Historically, it would have been the equipment, but that hasn’t been true for quite some time. The customer relationships are extremely valuable, simply because companies need sales. There’s an imbalance between those who need sales and those who have sales.”

More Closures

How will the balance of 2010 shake out? According to CGX’s Cohen, as the economy goes, so follows the fate of M&A activity. Absent meaningful recovery, he sees more distressed companies either liquidating or merging with stronger counterparts. Unfortunately, Cohen doesn’t believe the industry has reached rock bottom.

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