M&A Activity -- Expect a Surge in Mergers
By Harris DeWese
Another wave of merger and acquisition activity is mounting in the printing industry. Soon it will sweep across the industry as never before. It began mid-year 2003 and is likely to continue for several years. This new era of consolidation will be of greater magnitude than previous periods. It will have a different impetus and many new characteristics.
This surge is enabled by an improving economy, continuing low interest rates, buyers' pent-up demand for external growth, the difficulty associated with organic growth in printing and the catalytic effect of a handful of recent mega-deals.
This new period of consolidation will be driven by the industry's inexorable drive to dramatically shrink capacity; the vital need to manage and control fixed and variable expenses; the related need to improve profit margins; the increasing demands of digital and variable data technology; and smaller printers' attempts to survive as they face more intense competition from their larger and more efficient competitors that have broader offerings.
Printing will be an exciting place to be for the next several years. It will create soaring wealth and enormous satisfaction for some, but debilitating despair for others.
The next few years will feature more deals among the top 50 largest printing companies. These mega-deals have already begun with the Moore Corp. purchase of Wallace; the subsequent announced deal for RR Donnelley to buy the new Moore-Wallace; and Von Hoffmann's purchase of The Lehigh Press. In these three deals more than $3.7 billion in print sales changed hands—more sales than changed hands, for example, than during the entire year in 1997.
More Local Mergers Out of "Necessity"
Small, privately held local and regional printing companies will begin to merge at an unprecedented pace. This phenomenon was spurred by the 2000-2002 weak economy coupled with the tragedy of 9/11, which devastated the balance sheets and income statements of thousands of smaller printers. These deals truly shrink capacity because they usually involve larger and better financed companies acquiring the sales and selected assets of smaller and weaker competitors, whose plants will be shut down and whose equipment will be mothballed or sold abroad.