YEAR IN REVIEW - Is M&A Now DOA?
BY ERIK CAGLE
After two years of eye-bulging, wallet-emptying consolidations sweeping through the commercial printing industry, it is not all that surprising to hear forecasts that the consolidation craze has peaked and is now on the downturn. It may even be true (reserve judgment after reading the related article on page 88).
The consolidation front was, in fact, comparatively quiet in 2000, and it shared the news pages with bigger developments. Commercial printing stocks didn’t fare so well in 2000, which explains the lack of consolidation to a degree. A number of public companies bought back large chunks of their stock in the face of falling prices. But, for some, it was more than a little heartburn from integration indigestion. One major consolidator, Master Graphics, was delisted from the Nasdaq exchange, then later filed for Chapter 11 reorganizational bankruptcy.
Are the milk and honey days of consolidation in the past? Harris DeWese, chairman of Compass Capital Partners, an investment banking and valuation services provider to the printing industry, sees the landscape changing.
“The year 2001 will be another lean, albeit interesting, year in printing industry M&A activity,” DeWese contends. “Values will continue to be down and there will be very few active buyers. We expect that deals in 2001 will be more strategic and creative. We also expect some buyers to emerge from among the private equity firms.”
It seems no one was exempt from Wall Street’s mood swings. Internet stocks, once the sexiest line in NYC not created by Donna Karan, also felt the backlash. But that didn’t stop the dotcoms from popping up, creating a whole new buying/selling/brokering platform, and a new battlefield for profit margins.
Nearly half a million visitors made the pilgrimage to Dusseldorf, Germany, for DRUPA 2000 in May. When September rolled around, about 47,000 customers wandered into Chicago for Graph Expo and Converting Expo 2000 and wore out their check books.
And while the consolidation hurricane may have been downgraded to a tropical storm, commercial printers weren’t bashful about adding new presses, plant additions and even entire new facilities—it was a year of unabashed spending. It must have been the euphoria over not having to tap into the Y2K disaster relief funds. And yes, on January 1, 2000, the elevators worked, planes remained in the sky and microwaves didn’t take control over other household appliances. Nearly everyone passed the Y2K compliance test.
A look back at 2000 . . .
Workflow Management, of Palm Beach, FL, ushered out 1999 with the acquisition of Hunter-Pacific and Sundance Litho, both located in California. Workflow paid nearly $9 million for the pair in an all-cash transaction. R.R. Donnelley announced its plans to purchase Penton Press and Ennis Business Forms purchased American Forms, Northstar Computer Forms and Adams McClure.
Cunningham Graphics entered 2000 with a head of steam, purchasing five digital printing centers previously owned by The McGraw-Hill Companies. It wasn’t the last time the Jersey City, NJ-based company would make news in 2000.
Publicly held companies began to feel the low-earnings pinch. Wallace Computer Services, of Lisle, IL, announced that Robert J. Cronin, chairman and CEO, had resigned and the company reexamined its business plan following lower-than-expected earnings. Master Graphics’ common stock was delisted from the Nasdaq exchange, “as a result of Master Graphics’ inability to satisfy the maintenance standard,” officials said. Chairman John P. Miller resigned effective February 1.
With stock prices slumping, Consolidated Graphics, of Houston; Laser Master International, of Harrison, NJ; Menasha, WI-based Banta Corp.; Valassis Communications, of Livonia, MI; and Bowne & Co., of New York City, each embarked on stock repurchasing programs.
Cincinnati-based C.J. Krehbiel launched a growth strategy aimed at boosting sales by as much as 40 percent over a three-year period. The company added to its sales staff and increased the capacity of its electronic prepress and plate making departments, as well as installed a four-unit web press.
Speaking of prepress, Vancouver, Canada-based Creo, along with Scitex of Herzlia, Israel, made a splash with the announcement that they had combined their digital prepress efforts—creating a $635 million company. Thus, CreoScitex was born.
Quebecor World, the largest consolidation to come out of 1999, endured growing pains as it set out to restructure its giant family. An Illinois plant enjoyed expansion while a St. Paul, MN, facility closed its doors.
Some of the biggest consolidation news to come out of the first quarter actually came from the paper market, which saw a number of large moves with worldwide implications rock the industry during a two-week period. Stora Enso purchased Consolidated Papers for a reported $4.84 billion and UPM-Kymmene shelled out more than $6 billion for Champion International.
In one of the most notable mergers of the year, New York City’s Integrated Graphics (IGI) and Earth Color joined forces to become a leading provider of prepress and printing services in the New York metropolitan area. The combined company generates revenues in excess of $180 million.
In a sign of the times, Sells Printing, of New Berlin, WI, trumpeted the installation of its next generation Heidelberg Sunday Technology press by setting up a “PressCam” for all the cyberworld to see. By logging on to Sells’ Website, viewers could watch the unit in action. Viewer-controlled pan, tilt and zoom features allowed for different vantage points, making it truly a first for the commercial printing industry.
Cunningham Graphics returned to the forefront with the announcement that it had been acquired by Roseland, NJ-based Automatic Data Processing (ADP), a $5 billion computing services firm.
New York City-based Applied Graphics Technologies (AGT), on the heels of widening operating losses due to difficulties with integrating two of the company’s acquisitions, named Derek Ashley its new CEO. Ashley replaced Fred Drasner, who maintained his role as chairman. Change was also in the air for Dayton, OH-based Standard Register, which saw CEO Peter Redding retire and be replaced by Dennis L. Rediker.
The pace of consolidation picked up around mid-year, one with an interesting twist. ImageX.com, a business-to-business Internet company out of Bellevue, WA, purchased a “bricks and mortar” operation, Howard Press of Roselle, NJ. Banta Corp. purchased Southeastern Color Graphics of Johnson City, TN, and Englewood, CO-based Mail-Well picked up Craftsmen Litho, of Trumble, CT. A number of smaller deals were also consummated in a show of consolidation confidence.
K/P Corp., of San Ramon, CA, invested more than $6 million company-wide to upgrade equipment, expand services to new markets and move to a more digital workflow.
Reynolds & Reynolds, of Dayton, OH, dealt its Information Services Group to The Carlyle Group of Washington, DC, for $360 million cash, creating an $800 million printing and document outsourcing giant, Relizon.
Big Flower Holdings underwent a series of changes, starting with its name, by becoming Vertis Inc. Three of its divisions were consolidated and its corporate headquarters relocated to Baltimore.
A new competitor entered the consolidation scene when Watt/Peterson, of Plymouth, MN, and crosstown rival Cimarron Printing merged to create Printing Partners of America. The entity intends to acquire more companies.
Buoyed by a new contract to print National Geographic, Pewaukee, WI-based Quad/Graphics unveiled a two-year, $600 million expansion program. It included a $70 million investment to acquire seven major new pieces of press and finishing equipment.
The news was not all good. Master Graphics and its wholly owned subsidiary, Premier Graphics, filed Chapter 11 bankruptcy to restructure the company’s $205 million debt. By year’s end, the company announced its plan to exit Chapter 11, based around maintaining 11 core facilities. The remaining companies under the Master Graphics umbrella will be sold or divested.
It was also a record-setting year for Graph Expo and Converting Expo 2000, with new standards set for attendance and physical space.
What will the year 2001 bring? Stay tuned.