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May 2001

There was a time, not too long ago, that you could not pick up a graphic arts publication without going blind by the number of news items focused on Company A acquiring Company B, or Company C buying up the assets of Company D. Then along came the current state of the economy. Wall Street's time of living high on the hog appears to be over—at least for now.

Today, you can hardly open a newspaper or watch the evening news without seeing Alan Greenspan, chairman of the Federal Reserve Board, ready to drop interest rates yet again to try to put a spark in the belly of the economy. While we all hold our collective breath—waiting for stocks to rebound—the printing industry's M&A game has slowly ground to a halt.

Due to these economic and industry-specific trends, it seems to be a good time to check in with four of the biggest names in the consolidation arena: Carl Norton, chairman and CEO of Nationwide Graphics; Ron Jensen, president and CEO of Kelmscott Communications; Paul Reilly, the newly named president and CEO of Mail-Well; and Joe Davis, chairman and CEO of Consolidated Graphics, to get their take on the state of the industry.

PI: Nobody seems to be making acquisitions right now. Why has the printing industry consolidation front become so quiet?

Norton: I believe that the consolidation front is quiet because (a) there's been a slowdown in the printing industry, (b) there's a possibility of a recession in the U.S., (c) consolidations have fallen out of favor on Wall Street and with other financing sources, (d) interest rates have been relatively high for the last year or so, and (e) sellers of printing companies still remember and think that their companies are worth the EBITDA numbers that were discussed during boom times. Earnings disappointments announced by the major, publicly owned printing consolidators also concern venture capitalists and other financing sources.

Jensen: Two factors have drastically reduced acquisition activity. First, public company valuations, although recovering, are still lower than what is needed to stimulate significant acquisition activity. Second, the debt markets are severely restricted in the current economic environment. This pertains to both cost and availability. This is true even for quality companies with strong financial ratios.

Reilly: The major driver and the major reason it has come down is because the multiples of cash flow that public companies and consolidators have been trading at have come down significantly. For them, the consolidators, to be providing their shareholders with returns, they need to be purchasing companies below that. Few printers want to be purchased at those levels.


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