Mergers and Acquisitions — Deals That Make Sense

“We will see more involvement by private equity firms sponsoring an executive to do a buyout, then employing a buy-and-build strategy,” he says. “We’ll see more regional deals and more line extension-type transactions, like a package printer buying another with a different product line.

“The buyers are definitely smarter and are doing a better job of due diligence. There’s better rationale for the deals that they make.”

Market Segment Activity

James Cohen, executive vice president of mergers and acquisitions for Houston-based CGX, notes that much of 2007’s activity centered around market segments, including long-run catalogs, magazines, books, journals, inserts and labels, as well as the “print management” companies that are startups or divisions of larger printers that act as print brokers. He feels most deals fall under one of three objectives: printers latching on to new customers and growing a core business; providing a home for private equity funds; or transforming a printer into the aforementioned print management company in search of higher valuations.

“The deals in the segment of the printing industry that Consolidated Graphics competes in—shorter run commercial and digital printing of marketing materials, POP and direct mail—are largely being executed by a few established strategic buyers,” Cohen says. “I’ve seen very little bona fide private equity interest in our segment.”

Since CGX estimates that its core segment has a size of roughly $50 billion, it represents just 2 percent of a market with extreme fragmentation and numerous opportunities for consolidation. It is the other sectors that are attracting the private equity firms, he adds, such as Wellspring buying D.B. Hess and Bear Stearns acquiring Hilltop Press.

CGX is seeking to acquire companies that fit five criteria: revenues exceeding $10 million; management willing to stay post-acquisition; solid EBITDA and operating income; strong capex history; and a cultural fit with the parent company. The last item is not insignificant, stresses Cohen.