Compass Report--The State of M&A
Some of the consolidators have developed integration indigestion. One consolidator told us, "We are suffering from a sophomore slump: We have not been able to improve our earnings and we haven't learned how to manage former owners who are now our plant presidents."
Consider the problem of a consolidator. It buys a company and suddenly the former owner/CEO is a millionaire. His wealth is no longer tied up in a printing company and his motivation has changed.
Some will operate in a spirit of pride to continue growth and good company performance. Others will resist the controls imposed by the consolidator and gradually escape to the golf course or fishing hole. Still others will be offended, and hence less motivated, when they are no longer considered able to make decisions they made routinely in the past.
Wall Street has turned its back on the printing industry. If your company is public, the story needs drastic improvement. Section 5 of the report details the decline in public company stocks and their underlying performance ratios.
Unfortunately, our industry remains highly fragmented—segmented into a multitude of specializations ranging from tickets and coupons to billboards—and the profitability and growth of fragmented industries are hard to track. Who can accurately tell us if short run, perfect-bound book printers have an average return on investment (ROI) of 8 percent or 80 percent? Who knows for certain whether earnings growth for long run, gravure label printers is 3 percent or 30 percent?
We can track the profitability and growth of some of our largest public companies through their earnings reports and annual reports. However, these companies are highly diversified and serve a variety of markets with a variety of printed products.
The printing industry is not telling a good story. All this confusion among apples, oranges, pears and bananas renders many attempts to forecast print growth useless. One survey focuses primarily on sheetfed general commercial printers and purports a slowing of growth. Another polls print buyers who purchase products from only a handful of print segments and also predicts slower growth. Still another study—conducted by CAP Ventures—found that companies using the Internet for marketing are experiencing, on average, a 21 percent increase in their print volumes. This, the report concludes, is due to reaching more prospective customers and responding to Website inquiries with printed materials.