Tuesday, August 6, 2019

What’s in a Letter? – July 2019 M&A Activity


After rolling up the business of selling fonts, Monotype Imaging has announced that it is exiting the public market, accepting an offer from private equity firm HGGC. This highly profitable business reached the end of one road, veered off to the side, and is now being acquired as it struggles to find a new pathway forward. 

This is not a story of a distressed company, far from it. Rather, Monotype has been so successful in the consolidation of the font licensing business that the company has run out of significant acquisitions in its chosen market segment. Without a clear path to achieve future growth, the public markets have been punishing the stock price. Company management decided that it was time to sell, apparently before the company value declined even more. After Monotype ran a failed sale process in 2018 which saw 28 prospective buyers walk away without any definitive offers, HGGC emerged recently with an offer of $825 million in cash. Based on trailing twelve-month revenues of $244 million, the purchase price is 3.4 times revenues and 15.1 times the EBITDA of $54.5 million for the same period. Gross profit has been reported hovering around 85% of revenues, most of which are recurring and predictable, which explains the relatively high enterprise value (viewed from the perspective of those of us in the printing industry).

By 2015, having completed a long string of font-related acquisitions, Monotype had to look elsewhere for its next act. The company first acquired Swyft Media, a start-up providing mobile advertising and messaging apps. In a further drift away from the core business of licensing fonts, in 2016 Monotype acquired Olapic, which provides marketing automation software to capture and deploy user-generated visual content for social media and promotion. Olapic is not in the “steady as she goes” business of licensing fonts; the acquisition puts Monotype smack dab in the middle of the super-hot and rapidly developing business of marketing automation software. While this may prove out to be a prescient strategic move in the long run, Monotype laid off 80 Olapic employees when results fell short of expectations during the first year, and in the first quarter of 2019 the company reported a decline in the performance of the Olapic business unit.

This is not the first time that Monotype has regrouped and found a new way forward, nor will this be the first time the company is under private equity ownership. Indeed, this company is no stranger to technological disruption; the current Monotype company is the successor to the company that invented and manufactured one of the original technological disrupters, the Monotype hot metal caster. Along with the Linotype typesetter, these machines completely upended the laborious business of setting type by hand and paved the way for the tremendous growth in newspaper and book publishing. From its founding in 1887 to the 1960’s when phototypesetting was developed, the Monotype machine was considered the higher quality of the hot metal machines since each letter was separately cast and the typesetter could make minor changes in spacing or fix a misspelling by replacing a single incorrect letter. By contrast, the competing Linotype machine cast a complete line of type in one metal bar (or line), which was more compatible with rapid turnaround applications such as newspapers.



The erosion in the hot metal typesetting business was complete by 1992 when photo typography systems and desktop publishing software achieved absolute dominance. Failing to convert quickly enough to the new technology, Monotype filed for Administrative Receivership in the UK. After a series of owners and rebranding efforts, the company eventually was acquired by phototypesetting pioneer Compugraphic, by then a division of Agfa. Six years later, in 2004, Agfa divested the typesetting division, selling Monotype to private equity firm TA Associates. Resurrecting the Monotype name, TA Associates launched an aggressive roll-up strategy by acquiring Linotype, Monotype’s rival for more than a hundred years, by then a division of press manufacturer Heidelberg. Monotype returned to the public markets in 2007 and began to aggressively acquire other font companies, including font provider Ascender in 2010, digital font retailer Bitstream in 2012 (which included the online font seller MyFonts.com) and finally the last large independent digital font retailer FontShop in 2014.

From their early days, Monotype and Linotype did not just build machines, they also commissioned great designers to design fonts. Commissioned typefaces, many of which are ubiquitous today, included Gill Sans, Times New Roman, and Old Style Goudy. Several more classic fonts came along with the Linotype acquisition, including Helvetica, Frutiger and Optima. The ownership of these commissioned fonts, originally a value-added side product to the primary business of manufacturing machines, paved the way for Monotype’s eventual rebirth as a font licensing company.

Commercial Printing and Diversified Services

DG3 Group, the diversified printing and graphic services company headquartered in Jersey City, New Jersey, announced another acquisition in the UK. The acquired company, Newnorth Print Limited, will be consolidated into the existing two locations in the UK. With a core competency and origins in the financial printing segment, DG3 has focused on serving the financial centers of New York, London and Hong Kong, with support services in the Philippines. The company has been owned by Resilience Capital Partners since 2016 when it acquired DG3 from Arsenal Capital Partners (See The Target Report: Private Equity Participates in Printing Industry Consolidation).

Ennis, the publicly traded serial acquirer of trade-only printing companies, acquired The Flesh Company based in Fenton, Missouri. Included in the deal is subsidiary Impressions Direct which is focused solely on direct mail printing and services. Collectively, the two acquired companies had approximately $31 million in sales for their most recent fiscal year. In addition to the direct mail products, the acquired company provides business forms, checks and labels, sold mostly through print distributors and resellers.

PrintStar, a commercial printing company located in San Diego, California acquired the printing business of Sorrento Mesa Printing,* also of San Diego. The former owner of Sorrento Mesa is launching a new company focused on branding and promotional services. Suolo Communications, based in Minneapolis, Minnesota has acquired Commers Printing in Blaine, Minnesota. Suolo Communications was formerly known as RJM Printing and outgrew the printing-centric moniker. In 2016, the company rebranded with the Suolo name, billing itself as a “creative production agency” offering creative services, printing, signage and technical communications.

Coloredge, based in New York City, announced that it is merging with Primary Color Systems which is based in Cypress, California. Both companies offer high-end creative and display printing services for national brands primarily in the fashion, consumer goods and events marketing segments. Services at both companies include extensive prepress, retouching and package design, in addition to wide and grand format printing, structural design and installation. The merger is clearly intended to position the combined company as a national player, with additional locations in California, New Jersey, Atlanta, Georgia and two in China. We expect that this merger, which we see as similar to the Orora Visual roll-up, sets the stage for more national roll-ups in the wide and grand format segments.


* Graphic Arts Advisors, publisher of The Target Report, served as exclusive advisors to Sorrento Mesa Printing in this transaction.


2019 July - Mergers and Acquisitions in the Printing, Packaging, Paper & Related Industries  

Deal Party #1
(Surviving Entity)
Pre-Deal
Revenues
($Mil )


Party #1 Address


Deal Party #2
Pre-Deal
Revenues
($Mil )


Party #2 Address
Date
Deal
Public
Deal
Value
($Mil)

Deal Structure
(Intermediary)


Notes

Press
Release
HGGC No Data Palo Alto, CA Monotype Imaging Holdings $244.0 Woburn, MA 7/26/19 $825.0 Acquisition
(J.P. Morgan)
Typefaces & Fonts Link
Coloredge
(Port co. Saints Capital)
No Data New York, NY Primary Color Systems $62.0 Cypress, CA 7/26/19 No Data Merger Wide format & retail graphics Link
Graphic Packaging $6,090 Atlanta, GA Artistic Carton Company $63.0 Elgin, IL 7/23/19 No Data Acquisition Paperboard mill & converting Link
Suolo Communications No Data Minneapolis, MN Commers Printing No Data Blaine, MN 7/18/19 No Data Acquisition Commercial printing Link
Alphagraphics Austin
(Div. A Dog Solutions)
No Data Austin, TX Sign Satisfaction No Data Austin, TX 7/17/19 No Data Acquisition Signage Link
Ennis $415.4 Midlothian, TX  The Flesh Company $31.1 Fenton, MO 7/11/19 No Data Acquisition Forms & labels Link
PrintStar No Data San Diego, CA Sorrento Mesa Printing No Data San Diego, CA 7/10/19 No Data Acquisition
(Graphic Arts Advisors)
Commercial printing Link
Grimco No Data Fenton, MO Duratex Media Business
(Div. Agfa Corporation USA)
No Data Elmwood Park, NJ 7/8/19 No Data Acquisition Wide format substrates Link
Ricoh $18,100 Tokyo, Japan DocuWare No Data New Windsor, NY 7/2/19 No Data Acquisition Document automation Link
DG3 Group
(Port co. Resilience Capital)
$148.0 Jersey City, NJ Newnorth Print Limited No Data Bedford, UK 7/2/19 No Data Acquisition Commercial printing Link
KKR  No Data New York, NY Corel
(Port co. Vector Capital)
No Data Ottawa, ON 7/2/19 No Data Acquisition Graphic & creative software Link
McKinley Paper Co.
(Sub. Bio Pappel)
No Data Prewitt, NM
(Mexico City, Mexico)
U.S. Corrugated No Data Washington, PA 7/1/19 No Data Acquisition Corrugated packaging Link


2019 July - Bankruptcy Filings in the Printing, Packaging, Paper & Related Industries



Filing Party

Date
Case
Filed
Pre-Petition
Revenues
($Mil )



Case #



Filing Party Address



Circuit



Region & City



Judge



Attorney for Debtor



Notes
Chapter 11 Filings:
No Chapter 11 Filings Found this Month --- --- --- --- --- --- --- --- ---
Chapter 7 Filings:
McKella280 7/12/19 No Data 19-23597 Pennsauken, NJ 3rd New Jersey
Newark
Jerrold N. Poslusny Jr. Ira Deiches  Marketing service provider
SAP Digital Corp. 7/2/19 No Data 19-17759 Alhambra, CA 9th Central CA Robert N. Kwan Jonathan J. Lo  Commercial printing
Preferred Packaging Corp.
(and affiliated company)
7/3/19 No Data 19-23111 Lyndhurst, NJ 3rd New Jersey
Newark
Vincent F. Papalia Jonathan I. Rabinowitz Corrugated cartons & displays


2019 July - Non-Bankruptcy Closures in the Printing, Packaging, Paper & Related Industries



Closed Company / Facility

Date of Closure
Pre-Closure
Revenues
($Mil )



Closing Address
Related Party Related Party
Address
Date Closure Public


Notes

Press
Releases
Quad/Graphics - Printing facility 9/10/19 No Data Midland, MO Quad Graphics Sussex, WI  Jul-19 Special interest publications
Formerly Quebecor Printing facility
Link
Taylor Corp. - Printing facility 9/3/19 No Data Columbus, Ohio Taylor Corp. North Mankato, MN 7/15/19 Vectra Visual facility - Retail display Link
Gateway Press 9/12/19 No Data Louisville, KY N/A None Jul-19 Commercial printing Link
NuPak Printing 8/15/19 No Data Red Lion, PA N/A None Jul-19 Folding cartons Link
Industrial Marking Systems 8/27/19 No Data Milton, VT N/A None Jul-19 Label printing Link

Sunday, July 7, 2019

Print Publishing in Turmoil – June 2019 M&A Activity


The shakeout in the world of publishing continues unabated as titles in print face continued downward pressure in circulation, declining advertising revenues and inability to support the cost of editorial staffs, paper, printing and distribution. Meanwhile, the two remaining titans of magazine printing duke it out with the U.S. Department of Justice over their proposed merger. Designed to rationalize excess printing capacity with declining demand, the acquisition of LSC Communications by Quad can also be viewed as a desperate bid to gain pricing leverage over already beleaguered publishers.

One such publisher, Condé Nast, is the venerable company behind classic publications such as Vogue, Vanity Fair, The New Yorker, and GQ. Founded in 1909, the company has a long history of managing change in the media landscape and has kept up with the times with the acquisition of Wired magazine, the chronicler of emerging technologies originally inspired by the Whole Earth Catalog. In 2015, Condé Nast acquired the hip online music website Pitchfork; shortly thereafter ceasing publication of the accompanying printed quarterly magazine, retaining only the online delivery channels.

With loses reported in excess of $120 million announced last year, Condé Nast embarked on a sale process to offload its Brides, Golf Digest and W magazine titles. Brides magazine was sold in May. The buyer announced that after 85 years in print, the upcoming August/September issue will be the last time the magazine is printed, after which the publication goes to a strictly online format. Golf Digest was also sold in May. No plans were announced to cease publishing the print edition; at least that’s the scoop, for now.

In the latest resettlement of money-losing titles, W magazine moves from its prestigious ownership under Condé Nast to the less-than-glamorous stewardship of its new owner, Future Media Group. Future Media is the new holding company owned by the publisher of Surface magazine, the edgy, avant-garde design and hipster-culture, free-in-your-hotel-room glossy journal; as well as publisher of Watch Journal, the super-lux magazine distributed free at private air terminals and in luxurious high-end hotels.

The printed journals are core to Future Media’s distribution model, placed on behalf of advertisers in places of conspicuous consumption. Presumably print will continue to be a core format for W magazine; nonetheless Future Media will continue the transition, begun under Condé Nast, of W’s editorial content to online website and social media channels. Leaving no doubt about this, Future Media’s chief executive stated that the newly appointed editor-in-chief “has a forward-thinking sensibility that will bring W beyond its core print distribution into various offline, online and augmented formats.”

Meredith, the folksy Midwest publisher, has been deliberately and steadily dismantling the portfolio of Time-Life publications that it acquired in 2018. In keeping with its focus on “lifestyle” publications, primarily aimed at a female audience, Meredith has to date retained only the titles acquired in the Time-Life deal that fit this demographic audience, including Entertainment Weekly, InStyle, Travel & Leisure, and People magazine. The titles that are “newsier” and therefore contain quickly outdated information, have now all been sold, including Time Magazine, Fortune (See The Target Report: The Waning Fortunes of the Time Inc. Magazines), and Sports Illustrated (See The Target Report: Sports Illustrated Print Edition Heads to Hospice). Originally planning to sell Money magazine, Meredith announced that instead it will keep the title, however the current issue June/July will be the last in print. Money will be transitioned to online-only content.

Apparently, the U.S. Department of Justice determined that the last thing that magazine and book publishers needed was the merger of the two remaining behemoth printers and has sued to block Quad’s acquisition of LSC Communications. In an interesting twist, the Department of Justice lawsuit used the merger candidates’ own words against them, quoting several examples in which each side complained that if only they didn’t have to compete with the other, that would eliminate the last remaining impediment to establishing real pricing leverage in the market, especially for the printing and distribution of long-run high quality glossy titles.

In the event that Quad and LSC Communications prevail over the lawsuit filed by the Department of Justice to block their announced merger, the combined entity will be able to slash capacity and gain price increases. However, the ongoing reduction in the number of long and medium-run glossy publications that remain in print format may in itself be sufficient for publishers to maintain their downward pressure on print pricing.

Photobooks & Personalized Consumer Products

Shutterfly, the 800-pound gorilla in the digital photo storage, prints processing and personalized merchandise segment, announced that it was exiting the public markets and accepting an offer for $2.7 billion, including the assumption of debt, from giant private equity firm Apollo Global Management. Just to make sure that it would be the dominant player in a highly competitive and fragmented space, Apollo also announced that it was also snapping up Snapfish, an also-ran in the photo books and related online photo products printing segment.

Included with the Shutterfly deal, Apollo will also own Lifetouch, the photography and photo print company that Shutterfly acquired in January 2018. When Shutterfly announced the acquisition of Lifetouch, its market value soared as investors became enthusiastic about Shutterfly’s access to the 25 million students that Lifetouch photographs each year. That excitement did not last long when the projected synergies did not develop. Shutterfly’s stock price was overexposed and quickly retreated to levels not seen since 2016, creating an attractive opportunity for Apollo’s move to consolidate the segment.

Commercial Printing and Diversified Services

Mittera continues its national roll-up strategy with the acquisition of Sprint Denver, a commercial printing company. The Sprint manufacturing operation is slated to be consolidated into Mittera’s existing facilities. Mittera already has a facility in Denver, acquired with the purchase of the assets of Kansas City-based Henry Wurst company. The deal to acquire Sprint is the latest in a long string of acquisitions for Mittera, effectively a roll-up of roll-ups. (See The Target Report: Consolidation in Commercial Printing Rolls On).

Xpressdocs, a self-service on-demand marketing company based in Fort Worth, Texas acquired Amazingmail, a Phoenix, Arizona-based self-service direct mail printing company that utilizes proprietary software to connect with and support national brands with print runs as unique as one piece or up to many thousands per day. Xpressdocs completed the transaction with backing by private equity firm Falcata Capital.

Colortree Group, a Richmond, Virginia direct mail components printing company, closed its doors in June. This sudden closure was an abrupt about-face from the optimistic picture painted in 2017 when management acquired the company from Boathouse Capital. Boathouse had originally backed management in 2011 in a roll-up strategy, starting with the combination of two Virginia direct mail printing companies, Colortree and Graphic Innovations. The roll-up strategy apparently stalled after the 2013 acquisition of Direct Impressions, another Virginia-based direct mail printer. Eventually, Boathouse bailed out and sold the company back to the original management via the newly formed and oddly named entity, the Stingem Management Group. Unfortunately, it’s the 240 employees of this $57 million revenue printing company that got stung.



2019 June - Mergers and Acquisitions in the Printing, Packaging, Paper & Related Industries  

Deal Party #1
(Surviving Entity)
Pre-Deal
Revenues
($Mil )


Party #1 Address


Deal Party #2
Pre-Deal
Revenues
($Mil )


Party #2 Address
Date
Deal
Public
Deal
Value
($Mil)

Deal Structure
(Intermediary)


Notes

Press
Release
HP Inc. $58,700 Palo Alto, CA OneFlow Systems No Data London, UK 6/26/19 No Data Acquisition Workflow software system Link
Future Media Group No Data New York, NY W Magazine
(Prop. Conde Nast)
No Data New York, NY 6/25/19 No Data Acquisition Magazine publisher Link
Randa Duncan Williams No Data Houston, TX Texas Monthly Magazine
(Port co. Genesis Park)
No Data Austin, TX 6/25/19 No Data Acquisition Magazine publisher Link
Toppan Printing $13,000 Tokyo, Japan Interprint No Data Arnsberg, Germany 6/24/19 No Data Acquisition Industrial décor printing  Link
AlphaGraphics
Div. MBE Worldwide
No Data Lakewood, CO Print Speak No Data Sydney, Australia 6/18/19 No Data Acquisition Print MIS dashboard Link
Xpressdocs Partners No Data Fort Worth, TX Amazingmail No Data Phoenix, AZ 6/18/19 No DataAcquisition
(Woodbridge)
Direct mail printing Link
Paxton Media Group No Data Paducah, KY Lebanon Democrat ( & others)
(Prop. Sandusky Newspaper Group)
No Data Lebanon, TN 6/18/19 No Data Acquisition
(Cribb, Greene & Cope)
Community newspapers Link
Mittera Group No Data Des Moines, IA Sprint Denver No Data Denver, CO 6/12/19 No Data Acquisition Commercial printing Link
Apollo Global Management No Data New York, NY Shutterfly $2,090 Redwood City, CA 6/10/19 $2,700 Acquisition
(Morgan Stanley)
Photobooks & prints Link
Apollo Global Management No Data New York, NY Snapfish No Data San Francisco, CA 6/10/19 No Data Acquisition Photobooks & prints Link
Penguin Random House
(Div. Bertelsmann)
$1,800 New York, NY F+W Books
(Div. F+W Media)
$22.0 New York, NY 6/7/19 $5.6 363 Sale in Ch. 11 Specialty publishing Link
Elliott Management No Data New York, NY Barnes & Noble $3,550 New York, NY 6/7/19 $683.0 Acquisition Book retailer Link
Heidelberg $2,825 Heidelberg, Germany Crispy Mountain No Data Mainz, Germany 6/5/19 No Data Acquisition MIS system for printing Link
Fortis Solutions Group
(Port co. Main Post Partners)
No Data Virginia Beach, VA Label Technology No Data Merced, CA 6/3/19 No Data Acquisition Labels & flexible packaging Link
Modacentric
(Port co. Merchant Capital)
No Data Rolling Meadows, IL Modagrafics No Data Rolling Meadows, IL 6/3/19 No Data Acquisition Fleet, POP, & OEM graphics Link


2019 June - Bankruptcy Filings in the Printing, Packaging, Paper & Related Industries



Filing Party

Date
Case
Filed
Pre-Petition
Revenues
($Mil )



Case #



Filing Party Address



Circuit



Region & City



Judge



Attorney for Debtor



Notes
Chapter 11 Filings:
No Chapter 11 Filings Found this Month --- --- --- --- --- --- --- --- ---
Chapter 7 Filings:
Advantage Business Media, LLC 6/18/19 No Data 19-11360 Rockaway, NY 3rd Delaware Brendan Linehan Shannon Shannon Dougherty Humiston  Trade magazine publishing
MJS Printing, Inc. 6/6/19 No Data 19-11878 New York, NY 2nd Southern NY
New York
James L. Garrity Allan R. Bloomfield Commercial printing


2019 June - Non-Bankruptcy Closures in the Printing, Packaging, Paper & Related Industries



Closed Company / Facility

Date of Closure
Pre-Closure
Revenues
($Mil )



Closing Address
Related Party Related Party
Address
Date Closure Public


Notes

Press
Releases
Amsterdam paper mill 9/24/19 No Data Amsterdam, NY WestRock Norcross, GA Jun-19 Corrugated packaging Link
Web Graphics printing plant 9/27/19 No Data Queensbury, NY Amsterdam Printing & Litho Amsterdam, NY Jun-19 Business forms & stationery printing Link
Colortree Group 6/3/19 $57.0 Richmond, VA N/A None 6/3/19 Direct mail & envelope printing Link