Mergers and Acquisitions — Deals That Make Sense

THE LAST 12 months have been nothing if not explosive from a mergers and acquisitions (M&A) standpoint. Look at some of the big names that changed hands:

Valassis acquires ADVO for $1.2 billion.

M&F Worldwide plunks down $1.7 billion for John Harland Co.

Cenveo ropes Cadmus Communications (for $430 million), ColorGraphics, Printegra and Commercial Envelope.

RR Donnelley annexes Von Hoffmann for $412.5 million.

EarthColor bags L.P. Thebault.

Synergy Graphics obtains Sunny Industries.

Consolidated Graphics (CGX) lassos Pikes Peak and Cyril Scott.

American Color Graphics is still in play but needs a savior, and one has to wonder if Vertis Communications will be able to close the deal in the end. CGX did see one get away, as Hopkins Printing ultimately went the employee stock ownership plan (ESOP) route.

The top 20 of the Printing Impressions 400 continues to shrink as the industry continuously evolves and shrivels, then evolves some more. Look at the list from 10 years ago; it is amazing to consider the consolidation that has taken place in so short a time frame.

Where is it all going? Well, the strait-laced commercial printer isn’t finding a huge list of suitors knocking at his door, not on the grand scale at least. Harris DeWese, chairman and CEO of Compass Capital Partners in Exton, PA, and a leading industry transactional advisor, notes that there is but one national buyer of commercial shops in the $10 million-plus range (Consolidated Graphics), while the under-$10 million rank isn’t served by a national concern. Thus, DeWese believes we will see more marriages between regional competitors.

“Larger regional companies that wish to grow are easily sucked in as a potential buyer seeking relatively low-cost sales growth,” DeWese says. “They can carve out from 5 to 12 percent in fixed overhead.”

On the whole, DeWese says that today’s deals are being hammered out based on a justifiable material benefit to the buyer’s performance in the near term, as opposed to the “shotgun approach” of the late 1990s. He expects to see the regional M&A trend continue and doesn’t anticipate any mega deals in 2008.