Hire a planner and dust off that old suit because another wedding is in the works! The world has been buzzing about the R.R. Donnelley (RRD) acquisition of Consolidated Graphics (CGX), but is it more likely that they met on adultfriendfinder than eHarmony?
Of course, the financial side is a no-brainer. It doesn’t involve a ton of cash and RRD’s stock is up 112 percent YTD. It’s accretive, deleveraging, and it enables RRD to grow at low cost while eliminating a national competitor. In fact, it seems like such a good deal that The Law Offices of Vincent Wong is investigating whether or not the CGX board met its fiduciary duties
to its shareholders.
The strategy and cultural integration is what hangs in the balance for me. It could be more similar to a replay of Judd Apatow’s "Knocked Up" than a thoughtful courtship that weaves two families together. Do these two really belong together?
CGX's Joe Davis says the company is successful because of its “...ability to provide the service and responsiveness of a local printing company while offering customers the flexible solutions and competitive pricing available from our large network.” I’ll agree with the local part, but as a competitor, I haven’t seen the cross-selling benefits of the network play out on the national level.
The local aspect of CGX might seem to fit in with RRD’s vision to improve its existing position as a global provider of integrated communications, but the nature of the assets is crucial. CGX has been successful because plants have largely operated autonomously and customers have felt like they’re still dealing with their local printer.
In order to obtain the benefits of RRD’s scale, companies will have to integrate. Wayne Peterson wrote a nice article about RRD’s historical ability to succeed with integrations
, but to do so could destroy much of the value they have acquired. If companies ceased to operate autonomously, then customers could cease feeling like they’re dealing with their local printer. That’s the “eat my own head” scenario.
Wayne Peterson interestingly postulates that the master print agreements, or InnerWorkings approach, is and will continue to win with Fortune 1000 companies. He believes that RRD is making this acquisition to enable complete operational execution of these full life cycle agreements in local markets across the United States. The CGX plants mark the sheetfed and digital print operations that will carry out and enable these agreements.
If this really is the strategy, it pays quite a compliment to InnerWorkings for the work they’ve done in the print management space. Not only have they developed and matured the space, but they have forced RRD’s hand into a transformational merger.
I didn’t initially think of this as a transformational merger, especially given the relative size and footprint of each company. But when seen in the light of Peterson’s argument, this is a game changer.
As independent printers, Peterson warns that this could mean doom for many of us. If it works, it could establish a much more formidable turnkey national and international communications solutions provider.
But, transformational mergers are highly risky and don’t work out more frequently than they do. AOL & Time Warner and Daimler & Chrysler are very good examples. The integration will be monumental, and the crucial retention of the local element will be especially challenging.
As an independent, I’m content with this merger. A reduction in the number of large competitors is generally good, and there is plenty of work to do before RRD turns into a master print agreement juggernaut (if that ever happens). Now is the time of uncertainty. It’s when nerves kick in and people question whether or not they’re going to like the forthcoming change. Now is the time to poach customers, operators and sales people.
Only time will tell the exact intent and the relative success of this move. While they are "Knocked Up," we’ll see if they manage to live happily ever after.