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New Study Looks At Printing's Merger Mania

January 1998
ROCHELLE PARK, NJ—You've probably noticed the ubiquity of mergers and acquisitions within the printing industry. Alan J. Scharfstein, president of DAK Corporate Investors, has noticed, too.

Sharfstein's firm recently conducted a study on the outbreak of mergers and acquisitions.

DAK identified industries with intense M&A activity: packaging, office products, defense/ aerospace, contract manufacturing and, naturally, printing.

The conclusion for our industry? Within five years, approximately 67 percent of printers will either be consolidated or out of business.

This is not to suggest that two-thirds of the printing industry will soon disappear. Printers will change. They won't be gone completely.

Scharfstein points out that mid-size printers will experience the greatest consolidation. Some will become part of larger entities; others will grow through acquisitions.

"Most printers that we talked to expected to either acquire or be acquired," Scharfstein says. "Very few expected to be the same."

DAK didn't just talk to printers. The firm surveyed 780 companies—each with sales between $5 million and $50 million—from a variety of industries.

DAK is used to dealing with companies in this sales range. "We've been around for 13 years doing merger and acquisition work for mid-market businesses," Scharfstein says.

DAK focuses on the transactions that fall below Wall Street's radar. The firm regularly asks owners of privately held businesses about their M&A intentions. It found that these owners now sell their companies at younger ages.

In a study conducted a decade ago, DAK found that two out of three business sellers were 65 or older. That is no longer the case. According to the new study, 66 percent of sellers are between the ages of 30 and 65.

Why are sellers getting younger? Because owners are weighing their options earlier, Scharfstein replies.

"People are selling their businesses at younger ages because they are responding to basic structural changes in the industry," he says.

What types of structural changes? Well, in the printing industry, companies must deal with a trend that Scharfstein calls "asset utilization."

"Printers are facing changing technologies," he explains. "They need to invest in new equipment and technology that is very expensive—and very productive."

Indeed, there's more to printing nowadays than ink on paper. And the complementary services and state-of-the-art capabilities that buyers demand can easily erode a printer's financial foundation.

Those who choose not to invest in new equipment run the risk of falling behind both technologically and economically. Owners of these companies can look at mergers as a means of survival without the risk of costly investments. Once bought by larger companies, they receive the capital needed to stay in business.


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