Target Report: Stick to Your Knitting

The phrase “stick to your knitting” can be traced back to 1820 in American literature; but the concept is much older. In Greek times, Pliny the Elder noted that the “cobbler should stick to his last” because shoe-making is what a cobbler does best. The concept is simple, concentrate on one’s core business.

Increasing Market Penetration

In a move that shows a steady hand on the tiller, the Lakeside Book Company has acquired Marquis Book Printing, Canada’s largest book manufacturing company. The acquisition adds significant Canadian book production capacity to Lakeside Book, maintaining the company’s renewed laser-like focus on its core book manufacturing business. It’s a great example of a company that is executing a classic M&A strategy: acquire a business to increase presence and strength in the market for its existing product specialty. There is the added positive geographic rationale to this deal, expanding into Canadian English and French-speaking markets. Lakeside also noted in the press release that an additional factor in the decision to acquire Marquis was its business model, which serves small to mid-sized publishers. Nonetheless, at its heart, the acquisition of Marquis by Lakeside Book is additive to the core business. This was not a move to diversify and add a new and disparate product or service offering.

Sticking to its knitting, this recent deal piggy-backs on Lakeside’s 2022 acquisition of Maryland-based Phoenix Color. With backing from private equity sponsor ALJ Regional Holdings since 2015, Phoenix Color had completed several acquisitions and built a strong position as a specialty printer of highly decorated book components and heavily-illustrated children’s books. The purchase by Lakeside Book was predicated on and strengthened Lakeside’s existing position in book manufacturing.

As the book printing division of RR Donnelley, Lakeside Book traces its history back to 1864 when Richard Robert Donnelley started a small print shop in Chicago. In honor of its position near Lake Michigan, RR named his company the Lakeside Printing and Publishing Company. Lakeside would fade from the name over the corporate door, but “Lakeside” would be resurrected time and time again over the next hundred and fifty years.

The original Lakeside Printing building was destroyed in the Great Chicago Fire of 1871. Thirty years later, no doubt with memories of the fire loss in mind, RR commissioned the massive Lakeside Press Building in downtown Chicago and the huge Calumet Lakeside Plant, both purportedly designed to be fireproof. The two iconic buildings still stand today; the historic downtown site has been renovated and converted to loft style apartments serving the university that has grown up around the traditional Printers Row district. The Calumet plant, located down the lake shore, right next to McCormick Place, the home of many a printing industry trade show, has, ironically, been converted to an internet host data center.

Book printing played a crucial role within the RR Donnelley company and was often a point of pride for the company. In 1926, the company launched its “Four American Books” campaign, an effort to prove that American printing technology could equal the quality of the traditional European book printing houses. In addition to illustrated versions of Tales of Edgar Allen Poe and Two Years Before the Mast, the series’ best known book was the edition of Moby-Dick by Herman Melville, illustrated by Rockwell Kent. The initial production, a three-volume limited edition of one thousand copies issued in an aluminum slipcase, prefaced a series of subsequent more affordable editions that established Moby-Dick as a popular book, now considered an American classic.

In 2016, after many years of tremendous growth and diversification via acquisitions, the company appeared to have lost its way forward, and the largest printing company in the US split itself into three pieces. Book printing ended up in the newly-formed LSC Communications. The LSC name harkened back to the original company name and The Lakeside Classics, the annual Christmas-time publication of unique hardcover case-bound books. These highly collectable books were never sold by RR Donnelley, but rather were given as gifts to employees, stockholders, vendors and business associates. (See The Target Report: Transformation and Rebirth – July 2017).

After the split and divestiture from RR Donnelley, LSC Communications then began an acquisition spree of its own which seemed designed to recreate a mirror image of the former diversified RR Donnelley. LSC acquired a company that provided digital-content management and e-delivery services, commercial printing operations, and several logistics companies. Incredibly, one of the acquisitions included the print logistics business of its former brethren RRD which had inextricably ended up in the wrong place in the three-way split. Debt piled up. A failed attempt to sell itself to Quad/Graphics was squashed by the US Department of Justice, and LSC filed for Chapter 11 bankruptcy protection. Atlas Holdings, which owns several paper manufacturing companies and has deep experience in the packaging industry, emerged as the buyer of LSC Communications in a Section 363 asset sale in the bankruptcy proceeding. (See The Target Report: Deconsolidation of the Consolidators – October 2020 M&A).

Under the guidance and ownership of Atlas Holdings, LSC Communications has focused its book printing business on book printing. Lest there be any doubt about the division’s focus, in 2021 Atlas Holdings jettisoned the LSC name for its book printing division and rebranded it as simply the Lakeside Book Company, harkening back to the many uses of the “Lakeside” name, extending from its founding as a small Chicago-based printing company, to the names of its massive printing plants, to the moniker of its classic print gift editions. In the press release that announced the name change, there was clarity of purpose: the Lakeside Book Company would focus on crafting books and serving its customers, the publishing houses. That certainty of purpose was evident in the recent acquisitions by the Lakeside Book Company: build on and extend market share within the core product segment.

Entering an Adjacent Product Segment

CCL Industries, the notably disciplined global acquirer of specialty label printing companies, has made a move into a new, but adjacent, product line with the acquisition of Pouch Partners from the Swiss-based Capri-Sun Group. With plants in Germany and Italy, Pouch Partners provides printed films and pre-made stand-up pouches. CCL announced that the all-cash purchase price for Pouch Partners was $33 million, a cash-free, debt-free enterprise value of 6.5 times 2022 adjusted EBITDA of $5.1 million (figures have been converted from CAD to USD). The price paid was consistent with CCL’s past practice of maintaining a narrow and controlled purchase price range in its acquisitions. (See The Target Report: CCL Industries Breaks the Rules – January 2022).

The original stand-up pouch was invented in 1963 by Louis Doyen, CEO of French sewing machine manufacturer Thimonnier. The unique design, known as the Doy-N-Pack or DoyPack after the inventor, languished due to the expense of the pouch compared to flat pillow pouches and the folded juice box, also invented in 1963. It took until 1969 for the pouch to catch on, when a German entrepreneur, Rudolf Wild, created a sugary “all natural” drink, which he named after the Italian island of Capri to suggest a semi-tropical and exotic origin. Seeking a unique way to package his concoction, he arranged to acquire the rights to use the patented Thimonnier pouch design, originally purchasing all the machines they could make to block competition from copying his design.

Originally branded Capri-Sonne in Germany, the brand was introduced into the US with an ad campaign featuring champion boxer Muhammad Ali who touted the juice in the convenient lunch-box-compatible pouch as “the greatest of all time.” Ali reportedly actually liked the juice and the endorsement deal included one crate of the product delivered to him every week for four years. The bright packaging designs, sweetened juice flavors, and added convenience of an attached little bendable straw, all combined to create a hit, especially among the school lunch-box set. The stand-up pouch was established and became a viable lightweight packaging alternative to bottles, cans, or boxes. Now produced under license worldwide under the Capri-Sun brand and marketed as Capri Sun in the US, the brand is sold in over 100 countries, including China, and African and Middle East countries.

The assets acquired by CCL include the two manufacturing plants which supply highly-specialized, gravure-printed & laminated, flexible film materials for the production of pouches. Pouch Partners was not owned for long by Capri-Sun prior to the sale to CCL, having been acquired recently by the Capri-Sun Group in 2017. Commenting on the divestiture of the pouch business, the CEO of Capri-Sun noted that it was time for them to re-focus on their core business of beverages (sticking to their knitting?) For its part, CCL picks up a new competency with a committed and loyal customer for its output from day one of its ownership.

The president of CCL’s food & beverage label business made it clear that the company had been thinking about entering into the pouch packaging business for a long time, and that from an M&A perspective, the acquisition brought “highly focused, deep know-how for these materials, and a solid foundation to enter this market.” The CEO of CCL noted that if the investment in pouches in Europe was successful, the company might develop the product line globally, alongside the company’s decorative label portfolio. There is clarity of purpose in CCL’s stated M&A strategy: enter an adjacent market and acquire domain expertise via acquisition.

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View The Target Report online, complete with deal logs and source links for June 2023

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