Industry Consolidation — A Quiet Buyer’s Market

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

Bob Cronin, managing partner of The Open Approach.

Roy Grossman, founder of MSP.

THE ECONOMY is acting as a clog in the plumbing of printing industry M&A. The system is feeling more and more pressure from companies prolonging their desire to sell a business that perhaps needs an infusion of new blood or new equipment. Then there is the buyer…his hands locked by tight credit markets or unrealistic seller expectations. One doesn’t need statistics to provide enlightenment as to the economic realities that 2009 will offer. But they do help to gauge expectations. Take Compass Capital Partners, publisher of the annual “Compass Report” scorecard of industry M&A activity, which has completed roughly 150 printing industry deals. Its chairman and CEO, Harris DeWese, points out there were 60-odd deals in the printing industry during 2008, a good 80 percent of which were printers; the rest, suppliers.

DeWese contends that virtually all of the deals were completed prior to August 31—before the economy went the way of the Titanic. Supply is far outpacing demand at this juncture, he says. It’s a familiar tale: Aging print shop owner needs a succession plan…children have no interest in continuing family legacy…shop may or may not need an infusion of new equipment because owner can’t or won’t invest at this point.

DeWese projects that the industry will see 25 to 30 significant deals in 2009, once the economy starts firing on all cylinders again. He sees multiples returning to the four-to-six times EBITDA range.

“The two sets of buyers, strategic and financial, were kind of quaking in their boots during the period of uncertainty,” DeWese says. “Everybody was just frozen in terms of buying anything, which is understandable.

“Now that we’re past the inauguration and the signing of the stimulus package, I’m a great believer in the theory of rational expectations. As people begin to see and hear about good things happening, we’ll start to see good things happen again. It’s not going to resume to the pace we saw in the late 1990s, but the industry still needs to consolidate.”

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