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PIA/GATF Summit Looks at Industry M&As

January 1998
BOCA RATON, FL—The recent PIA/GATF Graphic Arts Industry Summit drew 225 paid attendees to hear merger and acquisition strategies and case studies, and to honor industry leaders.

Though the conference theme of "Buy, Sell, Merge, Grow" was directed toward the attendees, Ray Roper, PIA's president, and George Ryan, GATF's president, were paying close attention and taking their own notes. The consolidation of their organizations continues. Formal discussions were begun last November by the management and boards of both the PIA and GATF.

The two organizations may join together, but the term "merger" is inappropriate. GATF is classified as a 501-C-3 educational foundation, and PIA is a 501-C-6 trade association. A legal consolidation would allow both classifications to continue, structuring each entity to best fulfill its stated mission.

The boards of directors passed resolutions endorsing the proposed consolidation and directing the staffs to prepare documents necessary to make it legal. No time frame was set; the actual consolidation could take years to implement effectively.

Industry observers indicate that benefits of the consolidation would include elimination, or certainly reduction, of duplicate programs; improved administrative economics; and more effective marketing.

Robert Johnson, chairman and CEO of Bowne & Co., had plenty to say about effective marketing in his keynote address. "Successfully Managing in a Mature Marketplace" was based upon the strategic positioning and direction anticipated for Bowne in the next few years.

Bowne's core competency is fulfilling clients' time-sensitive and security information printing needs through increasingly proprietary technical skills.

In fiscal year 1996, Bowne generated sales of $500 million and profits of more than $42 million. The company's plans for the year 2000 forecast sales exceeding $900 million, with 30 percent of that coming from new business—such as from fulfilling corporate customers' "outsourcing" of commercial printing.

Johnson also announced a $20 million investment in a new longer-run, financial printing facility in South Bend, IN. Mutual fund prospectuses, being initiated from Bowne's Fundsmith proprietary software, are examples of the longer-run products to be produced on the plant's web presses.

One of the more popular sessions of the conference was the presentation by Joe R. Davis, chairman of Consolidated Graphics, on mergers and acquisitions. His firm has acquired 23 plants in 18 markets since going public in June of 1994.

After reviewing the five corporate consolidation periods in U.S. history, Davis surmised that M&A activity of the 1990s has been similar to that of the first consolidation trend of a century earlier. It shares the characteristics of a common industry, enhanced purchasing power and greater market share.

According to Davis, consolidating offers four advantages: economies of scale, access to advanced technology, financial stability and lower equipment costs.

Part of the economies of scale is negotiating insurance rates across a much larger base. Also, economies of scale allow a plant to concentrate on operations and sales for further growth and profitability. Management doesn't have to spend time and energy meeting with lawyers, bankers and accountants.

Davis illustrated lower equipment costs by citing Consolidated's recent agreement with Komori to buy $50 million worth of presses over five years at both favorable terms (implied discount) and quicker delivery.

A printer panel, comprising executives from companies that have been growing by acquisition, followed Davis. One panel participant, Steve Gillispie, CEO of Cadmus Communications, said that his acquisition strategies have been "organized around competencies and markets." Cadmus specializes in the production of scientific/technical journals.

Steve Dyott, CEO of ACG Holdings (Sullivan Communications), said that his firm concentrates on the advertising insert market. His staff members have identified 100 regional printers serving this $4.9 billion market. They have prepared a detailed database on each of these companies as a potential acquisition candidate.

He went on to say that their analysis clearly shows that national insert players had lower profit margins than did the more-preferred regional specialists.

ACG has completed 15 acquisitions. During the past 18 months, four firms were brought into the fold, while eight were not. Gillispie thought that was a pretty good batting average.

Both Dyott and Gillispie were clear, as was Davis, that they want top management of the acquired firm to stay in place.

When asked how to get the most value for your operation as a seller, Gillispie responded, "Get debt down. Get earnings up with strong cash flow." He added that the seller should get advice from knowledgeable outside sources.

By C. Clinte Bolte


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