Heading Into 2016, Strong Tailwinds for Printing Industry Transactions
Throughout 2015, New Direction Partners consistently reported the state of mergers and acquisitions in the printing and packaging industries to be vibrant and strong. But, as we leave the old year behind, we can be even more emphatic about it. The bottom line: today is a great time to be a seller, as EBITDA multiples have been increasing over the last few quarters. That being said, if you’re a buyer, the timing is still in your favor. Growth by acquisition is still easier than organic growth in most segments of both industries. This means that the present moment also is a good time to be a buyer.
In terms of numbers of transactions, M&As in both industries have been increasing each year since 2009, and we expect that trend to continue into 2016 and beyond. We’re not seeing the wild and dramatic swings that we saw in the late 1990s, and frankly, we believe that’s a healthy and hopeful sign that the trend will be here for a while. Both industries are large and still very fragmented. Therefore, consolidations should continue to happen for quite some time.
We saw many notable transactions close in 2015. They included the IPO of Multi Packaging Solutions; Jarden Corp.'s acquisition of Josten's Inc.; Taylor Corp.’s acquisition of Standard Register; and RR Donnelley’s reorganization into three entities. Other high-profile deals were Donnelley’s purchase of publicly traded Courier Corp.; RockTenn’s merger with MeadWestvaco, forming WestRock; and the purchase by Cimpress (formerly VistaPrint) of three large European Web-to-print providers.
Transactions like these create value not only for the sellers but also for the buyers. Publicly traded purchasers like Donnelley, WestRock, and now Multi Packaging Solutions, are all using M&As to drive their business models and ultimately their stock prices. That generates growth.
Another important trend, one that got started in 2015, has been the embrace of the printing and packaging industries by private equity (PE) players—financial buyers who look upon M&A transactions primarily as investments. This distinguishes them from strategic buyers who acquire companies for the reasons that printing firms typically acquire other printing firms: to expand geographical footprint, gain new production capabilities, and so on.
When New Direction Partners goes to market for our selling clients today, it is not at all uncommon for us to receive more interest from financial buyers than from those who are buying strategically. Looking at the five largest sales transactions we closed in 2015, we see that three went to private equity or financial buyers and only two to strategics.
On top of that, we’ve handled numerous smaller tuck-ins in both industries, almost always selling to strategic buyers as opposed to financial buyers. What it all tells us is that it’s difficult to imagine a better environment for M&A transactions. We still have a strong economy, banks are lending again for acquisitions, and interest rates remain at all-time low levels. We do anticipate a slight increase in interest rates as announced by the Federal Reserve, but we don’t believe it will be substantial enough to discourage bank borrowing.
Is there any reason to assume the M&A train is about to leave the station? We think the only reason it could happen would be for the printing and packaging industries to go through another economic downturn. Historically, we see the dreaded “r,” or recession, every five years. That would mean that we are overdue for another downturn, because the last one began in late 2008 or early 2009. However, it’s our belief that this may be delayed for some time given that the present recovery has been very atypical, very slow and very anemic. We can only hope that these conditions will delay the onset of the next recession.
Where does it leave us? In a good place. Today is a great time to be a seller. It’s also a great time to be a buyer. It may be a little better to be a seller, but there are still plenty of acquisition opportunities for buyers out there. Everyone who owns a printing or packaging company should be thinking seriously about taking advantage of what this exceptional M&A market has to offer.
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.