First-Quarter Results Signal First-Rate M&A Climate
M&A trends in the printing and packaging industries during the first quarter of 2015 reconfirm what we already knew: that M&A activity has picked up in every year since 2009, and that there’s every reason to believe the forward momentum will stay strong.
So far, 2015 has been no different from what we saw at the end of 2014 in terms of large-scale deals. Recently announced were RR Donnelley's purchase of Courier Corp.; RockTenn’s merger with MeadWestvaco; and the acquisition by Cimpress, formerly known as Vistaprint, of two large European Web-to-print providers. They all took place during the first quarter of 2015.
Because transactions like these create value for the purchasers, the stock prices of dealmakers such as RR Donnelley, Quad, Cenveo and RockTenn have been handsomely rewarded on Wall Street. They are all using M&As to drive their business models, and their stock prices are improving—another trend we can expect to see continue.
It’s difficult to imagine a better environment for M&A transactions than the one we’re enjoying today. Besides rising stock prices, brightening the picture are improved EBITDA multiples for publicly traded companies; record levels of private equity earmarked for investment in printing and packaging companies; encouraging forecasts for general economic growth; and low interest rates. With all of these tailwinds in the industry’s favor, we don’t anticipate a slowdown in M&A activity anytime soon.
What a contrast this is to the period between 2009 and 2012, when almost all of the transactions we saw involved troubled businesses. These deals were either tuck-ins—just the purchase of net assets—or even liquidation valuations. That’s no longer the case. We are still seeing transactions like these, but we’re also witnessing healthy businesses being acquired for multiples of their earnings, including all-cash-at-closing types of arrangements.
Multiples have been strong, and most significantly, they have been increasing each year since 2013. This is partly because of the reemergence of financial buyers in a number of private equity deals, a trend we began seeing in late 2014. One of our present clients is a direct mail printer, and in this assignment, we’ve been overwhelmed with the enthusiasm expressed by private equity buyers. We’re also working on a roll-up opportunity with several strategically located printers that offer significant critical mass, and once again, we’ve received very strong interest from financial buyers.
One of the main drivers behind all of this is the fact that banks are again lending to printing and packaging companies, and at all-time low interest rates. There’s also just an overall sense that the economy is improving and that GDP growth will remain positive. These factors, coupled with interest from financial buyers and improved public-company multiples, have been pushing multiples even higher for the industry as a whole.
No M&A scenario lasts forever, but barring anything unforeseen, the one we’re in should remain the one we’ll stay in for some time to come. Today, without question, growth by acquisition is easier than organic growth. Whether you potentially are a buyer or a seller, you probably will never have a better moment to leverage the opportunities that this upbeat M&A market is offering you right now.
Peter Schaefer, partner at New Direction Partners, is an experienced dealmaker with more than 25 years of investment banking and valuation experience, 20 of which has been focused exclusively on the printing and packaging industries. He has closed more than one hundred transactions in virtually every segment of the printing and packaging industries. In addition, he has performed hundreds of valuations for ESOPs, estate and gift tax planning and strategic planning purposes. Contact him at (610) 230-0635, ext. 701.