’Tis the Season for Serious Dealmaking —Michelson
JUST WHEN you thought the landscape had stabilized following the 11th hour acquisition of Banta by RR Donnelley in October for $1.3 billion—thwarting a hostile takeover attempt by Cenveo kingpin Bob Burton to wrest control of Banta—a subsequent flurry of blockbuster M&A deals has sent shockwaves throughout the graphic arts industry.
Who would have guessed that North America’s largest printer, RR Donnelley, would extend its reach even further by then swallowing up venerable entities Perry Judd’s for $176 million and Von Hoffmann for $412.5 million, both in all-cash transactions? Or that Cenveo’s Burton would remain undaunted about the big fish (Banta) that got away and subsequently reel in Cadmus Communications for $430 million in late December, thus making Cenveo North America’s third largest printer? So many large printing companies are now in the midst of changing hands during these first three months of the year, Q1 2007 will go down in industry history as the “Quarter of the Close.”
Soon, the Perry Judd’s name, dating back 75 years to the former Perry Printing and Judd’s companies, will be history. The same can be said for the more than century-old Von Hoffmann moniker and the 22-year run for Cadmus. Forthcoming will likely be announcements of various plant closures, headcount reductions and equipment reallocations as Cenveo and RR Donnelley begin to integrate their new holdings into their existing platforms. Both behemoths will strive to drive cost savings by removing corporate overhead redundancies and brokering better pricing from suppliers due to economies of scale. Emphasis will also be placed on creating new revenue streams through cross-selling to their now-expanded customer bases.
As publicly held establishments, Cenveo’s Burton and RR Donnelley’s Mark Angelson understand that maintaining the favor of Wall Street means, as a company, you’re only as good as your next quarter. And, since printing remains a relatively low-margin, highly price- competitive business, the primary way to achieve double-digit sales gains is through acquisitions, not organic growth. Dealmakers Joe Davis and Chris Colville, of Consolidated Graphics fame, also know the rules of the roll-up game in today’s business world, continuing to boost revenues (and share prices) by acquiring companies—albeit mostly standalone, family owned commercial printing operations.
Likewise, legal disputes resulting from an M&A transaction can draw the disfavor of Wall Street. Valassis Communications saw its stock price plummet after trying to back out of its July announced acquisition of ADVO, accusing ADVO execs of fraud and financial misrepresentation. Culminating in a trial in Delaware Chancery Court last month, the two sides ultimately agreed to complete the merger, with Valassis reportedly now paying $1.2 billion or $33 per share, an 11 percent discount over the previously agreed upon price of $1.3 billion or $37 per share.
Making the deal is the easy part of any acquisition. Senior execs at RR Donnelley, Cenveo and Valassis will now have to roll up their sleeves and carefully navigate the critical integration stage. They’re faced with customer bases looking for assurances that it will be business as usual. Employees—especially those within the acquired companies—won’t know if they have a position within the new corporate structure. And current suppliers may be replaced outright or be facing calls for contract renegotiations. The shockwaves from these major deals will have a ripple effect throughout the entire industry. Hopefully, they won’t cause a tsunami.
Mark T. Michelson