Reflecting on Quad/Graphics, Worldcolor Deal

Since its founding, Quad/Graphics has quietly and artfully grown to annual revenues of more than $2.266 billion (PI 400 – 2009). Its growth in a disastrous recessionary 2008-2009 economy was an astounding 11%. Most printing companies experienced sales declines ranging from 15% to 40%. Much of the growth over its 40-year history was organic vs. growth by acquisition. Much of that growth was attributable to brilliant management, innovative marketing, superior salesmanship, work ethic know-how and technological genius.

Quad/Graphics, for example, was the creator of the highly successful “little red schoolhouse” near its Wisconsin plant where customers visited to learn about the latest graphic technology but, more importantly, to be partnered with key Quad associates who helped them better produce their magazines and catalogs. Print buyers valued their “degrees” from the schoolhouse and never forgot the source of their knowledge.

Now Quad/Graphics is growing by acquisition in a transaction to acquire Worldcolor for an estimated $1.5 billion that will result in Quad leaping to the number two position among printers in the world with revenues estimated at more than $5.0 billion.

Quad/Graphics is a private company, so its income statement and balance sheet are not available. My estimate, however, is the projected EBITDA for the new company in its first 12 months will be approximately $1.0 billion and its Enterprise Value at eight times, at a minimum, will be north of $8.0 billion. And, my crystal ball could be very conservative.

This deal is happening for all the right reasons—great management, great opportunities for cost saving, great marketing and manufacturing fits, and great value for the shareholders.

Many industry observers will scramble to have themselves heard with their conjecture about the impact of this deal on our industry. Forgetaboutit. There is no short-term impact except to possibly some smaller competitors and to RR Donnelley, which also occupies the publication and catalog markets served by Quad.