Saturday, September 7, 2019

The Target Report Annual Recap – August 2019 M&A Activity



As readers of The Target Report know, we view the industry from the perspective of transactional activity. Over the past eight years, we have chronicled, logged, and commented on the robust merger and acquisition activity in the printing, packaging and related industries. As we get ready for the fall season which is replete with multiple trade shows, peer group meetings and opportunities as more companies come to market, we take a look back at the data on transactional activity that we have compiled and reported to you in our monthly reports. Our view this month is from the “30,000-foot level,” parsing the industry transactional data by industry segment, including bankruptcy filings and plant closures. This year we take a deeper dive and seek to provide some insight into not just the quantity and seasonality of transactions by segment, but also a view into the rationale that is driving deal activity.

We reviewed, categorized, sorted, counted and charted the data we have collected, comparing the past two years. Based on the number of transactions, the past twelve months were a bit quieter than the twelve months ended last August, with approximately 8% fewer transactions. Last year at this time, our year-over-year analysis showed that the trends were amazingly consistent to the prior year. M&A activity in our industry has slowed down, but not by much.

Commercial printing companies (general, retail inserts, catalog printers, copy shops and traditional display) and packaging companies (labels, folding cartons, flexible packaging and corrugated cartons) once again rank highest in the number of deals announced, followed closely by print-centric publishing companies (newspapers and magazines). Activity in the wide format segment (banners, grand format, trade show and retail signage) was steady and stable. There were a significant number of deals in the materials manufacturing segment, primarily due to the turmoil in the papermaking and distribution industry.



When we look at the seasonality of transactional activity, as shown in the chart below, we see a picture of the overall reduced activity, with a consistent downward trend each year as we get to the holiday season and year end.



Transactional activity tells us that an industry segment is undergoing change, however the number of deals does not tell us if that activity is indicative of positive or negative change. To determine a directional indication, we track the number of bankruptcy filings and non-bankruptcy plant closures and correlate this information with the overall transactional activity. Our thesis, born out over several years and confirmed by industry stats derived from other sources, is that an industry segment with a high number of transactions that is also experiencing closures and bankruptcies is or will be in a contraction phase. There will be opportunities for consolidation at bargain prices for those companies that defy the downward trend. This has certainly been true in the commercial printing segment (and obvious to even those outside our industry).

As we have noted over the past year, there have been warning signs emerging from our data in the wide format segment, especially in the undifferentiated end of the wide format business that offers wide format printing on a square foot pricing basis. Book printing has also been a difficult segment for some, with acquisition opportunities presenting from bankruptcies and closures.

Conversely, segments in which the number of transactions does not correlate directly with closures and bankruptcies are more likely to be expanding and consolidation opportunities will come at much higher prices. Virtually all the packaging segments are experiencing steady transactional activity, without the corresponding bankruptcy filings and plant closures, indicating a very healthy environment for sellers as the industry consolidates.



As noted, we also track activity in non-bankruptcy plant closures; many companies simply close up and just disappear without a formal bankruptcy filing. Other times, a closure does not mean that the company has ceased operating, it may simply be that one of the larger printing firms is “rationalizing” their production capacity. Either way, closures are indicative of change, usually resulting from downward pressure in a market segment. Consistent with the other data and as expected, general commercial printing companies represent the majority of printing facilities closing up shop.

Several binderies, book printing and newspaper printing companies closed up shop over the past year. Newspaper and magazine publishers and the printers that serve them have closed, as well as a number of paper mills affected by the reduction in demand for these papers.



When we look at the rationale behind the transactions in the commercial printing segment, we find a loud and clear predominance of tuck-in deals in which the customers of the acquired company are transitioned to the buyer’s production facility. In these tuck-in transactions, buyers will often leave the disposition of the plant and equipment to the seller, or to the seller’s agent, avoiding responsibility for trade and other debt, possibly “cherry picking” certain equipment that is needed or desirable for the smooth continued servicing of the acquired customers. In two instances out of the twenty-eight tuck-ins, the transaction was a “reverse tuck-in” in which the buyer acquired the assets and facility of the seller and moved their business into the purchased company.

Nonetheless, there were still eleven acquisitions in the commercial printing segment where the acquired facility was important and will remain in operation. That was especially notable in one acquisition of a retail inserts printing company and another transaction where the target company produced retail displays.

There were seven acquisitions where the acquirer noted that the purchased company added to their service offerings, as well as seven deals where the logic was to expand geographically. Of all thirty-nine transactions that we noted in the commercial printing segment, only four had a private equity sponsor and there were no companies purchased to form a new “platform” for building out a larger company.



The picture that emerges in the packaging segment is very different. Of the thirty-three transactions that we recorded over the past twelve months in the packaging segment, only two were reported to be tuck-ins, one that produced labels and one that manufactured folding cartons. In all the other cases, the buyers noted that the acquired location was an important element of the rationale to complete the deal. In some, the acquired company had multiple locations, or was global in scope. In eighteen instances, geographic expansion or diversity of the acquired locations was also noted as a key element in the buyer’s logic.

Private equity was involved in eighteen of the transactions, clear evidence that the roll-up model, with financial sponsorship from private equity, is in full swing across the various packaging segments. Interestingly, we did not note any new “platforms” being established by private equity in packaging, indicating to us that competition is already stiff among the existing players for packaging properties as they come on the market, squeezing out opportunities for the formation of new platform companies.



For our purposes in forming a picture of the various market segments that comprise the overall print-centric industries, we separate out companies that produce mostly wide format products from the more generalized commercial printing segment. Here we see proportionately fewer tuck-ins than in general commercial printing, with only three tuck-ins noted out of twelve total deals. The other nine transactions were based on maintaining operations at the acquired facility, some of which were significant in size.

Only two of the deals were based on adding wide format as a new service offering, which we attribute to the maturation of the wide format business and widespread adaption of these technologies into the larger industry. Three buyers noted geographic expansion as a fundamental reason for completing the acquisition; one of the larger deals was billed as a merger of equals and created a national footprint bridging east and west coasts. Four deals involved private equity firms, and there were two new platforms formed, indicating to us that private equity is taking note of the wide format segment.



And finally, we dug into the mailing services segment, which we have found to be more active over the past couple years. Of six deals we recorded, two were tuck-ins, in both cases the acquirer was a commercial printing company that was seeking to add mailing services or to expand and improve their current service offering. Private equity was not involved in any of the transactions and no new platform companies were formed. Two of the deals expanded the buyer’s business geographically, and in one transaction a commercial printing company acquired a fairly significant mailing services business, announcing that the acquired location would continue as a stand-alone operation.








2019 August - 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
Wallace Carlson $10.7 Minnetonka, MN J-C Press No Data Owatonna, MN 8/30/19 No Data Acquisition Commercial printer Link
Champaign Multimedia Group No Data West Frankfort, IL News-Gazette Media No Data Champaign, IL 8/30/19 No Data Acquisition Community newspapers Link
DIC Corporation $7,433 Tokyo, Japan BASF Colors & Effects
(Div. BASF)
No Data Ludwigshafen am Rhein, Germany 8/29/19 No Data Acquisition Pigments Link
Drummond No Data Jacksonville, FL PSP Retail No Data Decatur, GA 8/25/19 No Data Acquisition Wide format & retail graphics Link
United Business Mail No Data Minneapolis, MN Commingle Business
(Div. LSC Communications)
No Data Aurora, IL 8/21/19 $11.3 Acquisition Commingling services Link
Paper Converting Machine Co.
(sub. Barry-Wehmiller)
No Data Green Bay, WI RDP Marathon No Data Laval, QC 8/16/19 No Data Acquisition Flexo & gravure presses Link
Paper Converting Machine Co.
(sub. Barry-Wehmiller)
No Data Green Bay, WI IPT Digital No Data Sarasota, FL 8/16/19 No Data Acquisition Flexo press conversions Link
Finch Paper
(Port co. Atlas & Blue Wolf)
$280 Glen Falls, NY French Paper Co. No Data Niles, MI 8/16/19 No Data Acquisition Uncoated printing papers Link
Solisco No Data Scott, QC Norecob No Data St-Jules, QC 8/16/19 No Data Acquisition Catalog & book printing Link
Signature Graphics No Data Portland, OR Target Media Northwest
(Div. Lee Enterprises)
No Data Spokane, WA 8/13/19 No Data Acquisition Retail circular printing Link
Specialty Graphic Imaging Association (SGIA) No Data Fairfax, VA NAPCO Media No Data Philadelphia, PA 8/6/19 No Data Acquisition Magazine publisher Link
Phase 3 Marketing and Communications $26.0 Atlanta, GA Imagers No Data Atlanta, GA 8/6/19 No Data Acquisition Commercial printer Link
New Media Investment
(Parent of GateHouse Media)
$1,590 New York, NY Gannett $2,790 McLean, VA 8/5/19 $1,380 Acquisition Newspaper publisher Link
Avant Publications
(Div. Champion Media Group)
No Data Laurinburg, NC Times Leader
(Prop Civitas Media)
No Data Wilkes-Barre, PA 8/2/19 No Data Acquisition Community newspapers Link
Sappi $5,830 Johannesburg,
South Africa
Paper mill
(Prop. Rayonier)
No Data Matane, QC 8/1/19 $175.0 Acquisition Pulp Mill Link


2019 August - 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:
Costello Industries, Inc.
dba Costello Printing & Design
8/26/19 No Data 19-23365 Tarentum, PA 3rd Western PA
Pittsburgh
Gregory L. Taddonio Christopher M. Frye  Commercial & book printing
Chapter 7 Filings:
Southeast Media, Inc. 8/20/19 No Data 19-34639 Conroe, TX 5th Southern TX
McAllen
Eduardo V. Rodriguez Theresa D. Mobley  Commercial Printing
WTD Printing, Inc. 8/8/19 No Data 19-82352 Decatur, AL 11th Northern AL
Decatur
Clifton R. Jessup Jr. John Zingarelli  Printing & copying


2019 August - 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 9/14/19 No Data Shakopee, MN Quad Graphics Sussex, WI  8/14/19 Retail inserts
Formerly Vertis printing facility
Link
LSC Communications - Printing plant 11/30/19 No Data Torrance, CA LSC Communications Chicago, IL 8/8/19 Magazine & catalog printing Link

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