Thursday, February 6, 2020

The Smartest Investor Ever Exits Newspapers – January 2020 M&A Activity

Warren Buffet, arguably the greatest investor in the world, has decided to leave the club of billionaires that own and support publications that have been withering and would otherwise be facing certain death and closure. We see his exit as especially significant. While many newspapers lower page counts, publish three or four days instead of seven, reduce page size and cut run lengths, there has been a promising star on the horizon: Warren Buffet the “Oracle from Omaha.” Buffet acquired newspapers in mid-size cities and smaller towns across the country, and often expressed confidence while others predicted doom. That hopeful light has gone out with the sale of BH Media Group, the umbrella company for most of Berkshire Hathaway’s newspapers. The Buffalo News, which was owned independently of the group, was also included in the sale, making the exit virtually complete.

The buyer, Lee Enterprises of Davenport, Iowa, will add 31 daily newspapers to the 50 it already owns and nearly double its readership. Announcing the sale, Buffet stated that “We had zero interest in selling the group to anyone else for one simple reason: We believe that Lee is best positioned to manage through the industry’s challenges.” While the announcement of the sale surprised many in the newspaper industry, since Buffet is famously not a seller of companies once acquired, the choice of buyer was not surprising. The relationship between the two companies goes back at least to 2012 when Buffet’s Berkshire Hathaway rescued Lee Enterprises out of bankruptcy, buying $85 million of Lee’s debt that was held by Goldman Sachs. Berkshire was reported at that time to also have acquired an equity position in Lee approaching 4%. Lee Enterprises was choking on the debt hangover from its $1.46 billion purchase of the Pulitzer papers back in 2005 as well debt from other prior acquisitions that comprise the Lee collection of newspaper titles. In 2013, Berkshire Hathaway came to Lee’s rescue again, refinancing the remaining Pulitzer debt at a reduced fixed interest rate and extended maturity date, and with no up-front financing fees to boot.

As the relationship deepened between the two companies, in June 2018 BH Media handed over the daily management of most of its newspapers and digital media products to Lee, effectively exiting the operational aspects of the newspaper business. Clearly, a sale to any company other than Lee Enterprises would have been very difficult, given that Lee was already deeply entrenched in the day-to-day running of the newspapers.

The total revenue of the sold properties was $373.4 million last year, with a respectable adjusted EBITDA of $47.4 million (12.7%). Lee Enterprises paid $140 million cash which represents a multiple of 3.0x times EBITDA, which we hear is typical for newspapers in today’s market. Expressed relative to revenues, the price paid was 37% of 2019 revenues.

Buffet has been a man with a deep affinity for newspapers his entire life. He started his business career selling magazines door to door, and was a newspaper delivery boy in high school, back when such a thing existed. One tale about Buffet’s entrepreneurial spirt claims that he personally delivered over 500,000 papers before moving onto bigger and better business ventures, placing pinball machines in barber shops and then selling the enterprise for a tidy profit. Known for his folksy and modest style, Buffet has enthusiastically conducted and participated in a newspaper throwing contest each year at the company’s annual meeting. Not the typical sport of billionaires!

Nonetheless, ever the diligent investor, Buffet saw that the newspaper business was coming to an end, at least for those publishing in the secondary metro, regional and community markets. In April 2019, Buffet served up his prognosis for the newspaper industry in an interview with Yahoo Finance in which he announced that newspapers, with the possible exception of the big three, “are going to disappear.” Buffet added that the newspaper business “went from monopoly, to franchise, to competitive, to … toast.”

Despite the apparent exit from the newspaper business, Berkshire Hathaway remains deeply invested in the business that Lee acquired; the funds used to pay the $140 million purchase price were lent to Lee by Berkshire Hathaway! In addition, Berkshire ramped up the financing package to a total of $576 million at 9% annually with a 25-year maturity and no performance covenants, paying off all of Lee’s other lenders. The lifeline of extended fixed rate debt was rewarded with a 67% bump up in Lee’s stock price by the end of the day. Effectively, Berkshire Hathaway has traded its operational and equity position in for a senior secure debt position but still bears the risk that Lee can navigate the highly likely impending wind-down of the printed products and concurrent transition to digitally delivered local and regional content.

Tellingly, Berkshire Hathaway has retained title to all the real estate, granting Lee ten-year lease terms on the properties associated with the publishing assets. It’s worth noting that the real estate is often the gem that remains when many local newspapers eventually shut down the printing operations. As noted recently by industry pundit Frank Romano, remarking on the repurposing of former newspaper headquarters, “one condo in the iconic Chicago Tribune building was offered for $7.6 million.” Despite having sold the publishing business at what appears to be a loss, it may be that the real estate, retained by Buffet’s company, may in the end prove him once again to be the smartest investor after all.

Wide Format, Retail Display & Outdoor

TC Transcontinental, after engineering a dramatic and consistently executed strategic transformation from Canada’s biggest printer of publications into a flexible packaging manufacturing powerhouse, has now embarked on another strategic direction. Similar to the company’s move into flexible packaging, the new direction is clearly articulated. The company’s latest press release announced the recent acquisition of Artisan Complete Limited as “aligned with TC Transcontinental’s strategy to continue growing in the in-store marketing product printing vertical, where the Corporation is already a key player in Canada.” With its second acquisition of a wide format, in-store display printing company within a three-month period, Transcontinental is, as before, unswervingly executing its strategy. While not eschewing the possibility of further acquisition activity in the flexible packaging space, the company is clearly pursuing another new direction.

As other large publication-centric printing companies stumble strategically with loosely described efforts to offer every service imaginable or move upstream and compete with and/or acquire creative advertising agencies, TC Transcontinental continues to transform itself via acquisitions to develop new well-defined production-oriented segments of its business that are adjacent to its historical strengths, but with more promising future prospects than its traditional publication printing business (see The Target Report: April 2018, Getting Flexible in Your Middle Years).

In other transactional activity in the wide format and related services segment, Gemspring Capital acquired Skyline Displays which provides hardware, pop-up booths and much more for displays and exhibits for trade shows and events. Simultaneously, Gemspring bought TradeTec, the largest formerly independent dealer of Skyline products. The two companies will be combined under the Skyline brand.

Outdoor Image, located in Duluth, Georgia and a provider of out-of-home advertising and related services, has acquired Kramer Graphics in Dayton, Ohio. Kramer produces graphics for billboards, point-of-purchase displays, grand format building drapes, vehicle wraps and large-scale floor graphics. The company intends to retain all current staff and operate both locations.

Circle Graphics, one of many print-centric portfolio companies owned by mega private equity firm H.I.G. Capital (see The Target Report: November 2019, Diversified Graphic and Marketing Services) took quick advantage of H.I.G.’s bountiful financial backing and acquired Metromedia Technologies. Based in New York City, with additional facilities in Ohio and California, Metromedia produces super-sized graphics that adorn buildings in Times Square and other high-intensity areas requiring skilled installation, wrap double-decker buses, and decorate sports arenas. The roll-up in grand format has begun in earnest.

Commercial Printing and Diversified Services

Graphic Village, based in Cincinnati, Ohio, is back on our deal log again. The company has grown strategically through acquisition; its latest move the purchase of Intrinzic which it identified as a “branding consultancy.” The acquired company provides brand concept development, design services, social media marketing, SEO, and other digital marketing services. Graphic Village has grown into a $22 million diverse graphic services company via serial acquisitions, including a folding carton manufacturer and a commercial printing company, both acquired in 2018. (See more about Graphic Village and links to other sources in The Target Report: September 2018).

Hederman Brothers Printing, a commercial printing company in Madison, Mississippi that dates back to 1898, has acquired Service Printers, a local commercial printer that will be tucked-in. The company has also recently diversified from its traditional offset and digital printing offerings and added wide format services, banners and vehicle wraps.



2020 January - 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
CCL Industries$4,069Toronto, ONIbertex Etiquetaje / Eti-Textil$7.7Elche, Spain1/31/20$19.6AcquisitionApparel labelsLink
Lee Enterprises$509.9Davenport, IABH Media Group
(Div. Berkshire Hathaway)
$373.4Omaha, NE1/29/20$140.0AcquisitionNewspaper publishingLink
Mitchell PressNo DataBurnaby, BCNorth West Book Operating Co.No DataBellingham, WA1/29/20No DataAcquisitionBindery servicesLink
cdsPrintNo DataCincinnati, OHKwik Kopy Business CenterNo DataTaylor Mill, KY1/28/20No DataAcquisitionPrinting & copyingLink
MaxcessNo DataOklahoma City, OKRotoMetrics
(Port. Co. Sentinel Capital)
No DataEureka, MO1/28/20No DataMergerConverting diesLink
Graphic Packaging$6,160Atlanta, GAFolding carton plant
(Div Quad/Graphics)
No DataOmaha, NE1/28/20$40.0Asset Acquisition
(Mesirow)
Folding cartonsLink
Monotype Imaging HoldingsNo DataWoburn, MAFontsmithNo DataLondon, UK1/27/20No DataAcquisitionFonts and design servicesLink
Graphic Village$22.0Cincinnati, OHIntrinzicNo DataCincinnati1/27/20No DataAcquisitionMarketing agencyLink
OSG Billing Services
(Port co. Aquiline Capital)
No DataRidgefield Park, NJGabriel GroupNo DataEarth City, MO1/24/20No DataAcquisition
(Corp Dev Assoc)
Transactional printingLink
Hederman Brothers Printing$13.9Madison, MSService PrintersNo DataFlowood, MS1/21/20No DataAcquisitionCommercial printingLink
Inx International
(Div. Sakata Inx Corp.)
No DataSchaumburg, ILRUCO DruckfarbenNo DataEppstein, Germany1/20/20No DataAcquisitionInk manufacturerLink
Gould Paper$5,000New York, NYMcGrann PaperNo DataCharlotte, NC1/16/20No DataAcquisitionPaper distributorLink
Gemspring CapitalNo DataWestport, CTSkyline DisplaysNo DataEagan, MN1/15/20No DataAcquisitionTrade show displaysLink
EO Johnson Business TechnologiesNo DataWausau, WIStandard DynamicsNo DataBurnsville, MN1/14/20No DataAcquisitionPrint equipment distributorLink
Transcontinental$3,040Montreal, QCArtisan CompleteNo DataMarkham, ON1/13/20No DataAcquisitionWide format, in-store displayLink
Outdoor ImageNo DataDuluth, GAKramer GraphicsNo DataDayton, OH1/8/20No DataAcquisitionWide format printingLink
Michael KishaNo DataSarasota, FLSun Graphic TechnologiesNo DataSarasota, FL1/8/20No DataAcquisition
(New Direction)
Wide format printingLink
Industrial Opportunity PartnersNo DataEvanston, ILMidwest Paper GroupNo DataCombined Locks, WI1/8/20No DataAcquisitionRecycled paper millLink
Continental Plastic CardNo DataPompano, FLBiz-MagNo DataWeston, FL1/6/20No DataMergerPlastic card, magnet printingLink
Media CentralNo DataVaughan, ONGeorgia Straight
(Prop. Vancouver Free Press)
No DataVancouver, BC1/6/20$1.3AcquisitionCommunity newspaperLink
Dobbs Management Service
w/ Clavis Capital Partners
No DataMemphis, TNDCG OneNo DataSeattle, WA1/2/20No DataAcquisitionDiverse marketing servicesLink
Circle Graphics
(Port Co. H.I.G. Capital)
No DataLongmont, COMetromedia TechnologiesNo DataNew York, NY1/2/20No DataAcquisitionGrand & wide format printingLink
CFSNo DataNorton, MANew England Professional SystemsNo DataHolliston, MA1/2/20No DataAcquisitionDirect Mail & fulfillmentLink


2020 January - 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:
Schurman Fine Papers1/23/20No Data20-10135Goodlettsville, TN3rdDelaware
Wilmington
John T. DorseyNicolas Jenner Fine stationery, greeting cards
Chapter 7 Filings:
X-Press Envelope & Printing, Inc.1/2/20No Data20-30003Pottsboro, TX5thNorthern Texas
Dallas
Harlin DeWayne HaleJoyce W. Lindauer Envelope printing


2020 January - Non-Bankruptcy Closures in the Printing, Packaging, Paper & Related Industries



Closed Company / Facility

Date of Closure
Pre-Closure
Revenues
($Mil )



Closing Address
Related PartyRelated Party
Address
Date Closure Public


Notes

Press
Releases
Whitehall Printing Company2/13/20No DataNaples, FLN/ANoneJan-20Commercial printingLink
LSC Communications - Printing facilityJul-20No DataStrasburg, VALSC CommunicationsChicago, IL1/14/20Magazine and catalog printingLink
LSC Communications - Printing facilityJul-20No DataGlasgow, KYLSC CommunicationsChicago, IL1/14/20Magazine and catalog printingLink
LSC Communications - Printing facilityJul-20No DataMattoon, ILLSC CommunicationsChicago, IL1/14/20Magazine and catalog printingLink

Monday, January 6, 2020

The Penguin’s Native Tongue is Now German – December 2019 M&A Activity


Bertelsmann, the massive media company based in Germany, has announced that it will soon become the sole owner of Penguin Random House. Upon approval by regulators, which is expected, the company will purchase the remaining 25-percent of the joint-venture now owned by Pearson, the UK-based publisher that is shedding non-educational assets. Penguin, owned by Pearson, and Random House, owned by Bertelsmann, came together in 2013 to form the world’s largest book publishing group, bringing many familiar names under one roof. Much of the publishing industry had been in continuous “roll-up” mode for decades, similar to the printing industry; the joint-venture was one more continuation of that process. Previous acquisitions on both sides of the joint venture included well-known and respected publishing houses including Doubleday, Modern Library, Alfred A. Knopf, Pantheon, Ballantine Books, Bantam, Dell, and many others. 

One of the most famous and historic trade names of the combined entity was Penguin, surviving the latest merger and still enshrined on the company marquee, slated to remain the lead name in the new wholly-owned subsidiary of the Bertelsmann publishing division. The new entity will, amazingly, consist of more than 300 different brands or “imprints” under which the company publishes books. Similar to how the Volkswagen, Audi, Porsche and Bentley brands are all manufactured by one company but target different customers, all 300 imprints will be published under the overarching Bertelsmann umbrella, but marketed to different audiences and demographic segments. Like the VW Beetle, the Penguin imprint got its start in the 1930’s and was conceived as a low-cost alternative to traditional methods, effectively accomplishing its intended function, but priced to be affordable to the masses.

Penguin founder Sir Allen Lane had publishing in his blood. He rose quickly from apprentice to the position of managing editor at his uncle’s publishing company. Sir Allen took risks; he was the first to publish James Joyce’s highly controversial Ulysses in England (much later in life, taking another risk, he purposely published an uncensored edition of D.H. Lawrence’s Lady Chatterley’s Lover just to test the censorship laws in England). In 1934, when traveling back from a weekend visit with mystery writer Agatha Christie at her country home, he found himself without something to read and was aghast that the only reading material available at the train station were magazines and reprints of Victorian novels. Hence, the idea was born for inexpensive editions of quality literature, sold in vending machines and at non-traditional outlets for books such as tobacco stores and, of course, railway stations. Sir Allen priced the original editions equal to a pack of cigarettes, so low that some authors, including George Orwell, took it upon themselves to protest the idea which they believed would undermine the market for books.

The idea was not new, however. Several years before, a German company had established Albatross Books in Hamburg based on the same ideal of publishing inexpensive paperback versions of quality literature. Not only did Sir Allen adopt the use of a bird as the brand name and the logo, his books, like the German predecessor, were sized to approximate the proportions of the golden ratio, used modern sans-serif fonts, and eschewed the use of illustrations on the covers favoring instead simple graphic treatment with typography and color-coded by genre.


Dancing Penguin from 1938
The idea took off and eventually other publishers and authors agreed to sell Penguin the rights to publish an inexpensive paperback edition of their titles under the Penguin imprint. Penguin titles were primarily focused on great fiction (best-known for the orange banded covers) but also included crime novels (green), travel and adventure (pink), biographies (dark blue), drama (red), essays (purple), miscellaneous (yellow) and world affairs (grey). The success of the Penguin brand was followed up by Pelican Books (light blue) which published non-fiction titles, and then by Puffin Books for children. The original name for the brand was suggested by a typist listening in on Sir Allen’s conversation. He then sent a young staff member off to the London Zoo to draw the original Penguin logo. The logo morphed over the years, sometimes upright and stiff, other times happily dancing. Occasionally, the book was embellished with a pair of back-to-back dancing penguins, for reasons that are no longer obvious or explained.

According to recent reports, it appears that the market for printed books has stabilized, or at worst, is declining only slightly. Print, at least when it comes to books, is not dead, nor is the printed book on life support as appears to be the case for many newspapers and magazines. To support its commitment to printed communications, especially books, Bertelsmann’s subsidiary Bertelsmann Printing Group maintains a global staff in excess of 8,200 employees, with more than 20 manufacturing sites in Europe and the U.S. If it were a standalone company, the Bertelsmann Printing Group would be the largest printing company in Europe. On a global basis the company’s revenue is approximately $1.8 billion annually.

In the U.S., Bertelsmann has acquired several companies and operates plants that specialize in book printing and related services. Berryville Graphics, in Virginia, operates a highly automated hardcover and softcover book manufacturing facility. Coral Graphics, located on Long Island, New York, with additional facilities in Virginia and Kentucky, prints highly decorated book components including book covers, jackets and inserts. Offset Paperback Manufacturers (OPM), located in northeast Pennsylvania, produces several hundred million paperbacks each year. The U.S. operations combined employ 1,300 with revenues in excess of $230 million.

It’s been 88 years since two Germans and an Englishman launched the predecessor concept to Penguin Books in Hamburg. Through the vicissitudes of world events, Albatross Books was eventually shuttered and one of its founders emigrated to America and eventually headed up Penguin Books in the U.S., the successor to his own original concept. Later this year, the world’s leading company that produces inexpensive books produced for the masses goes home to roost in Germany.

Commercial Printing and Diversified Services

Walsworth, with reported revenues just shy of $180 million and based in Marceline, Missouri, announced the acquisition of Ripon Printers, located in Wisconsin. More than half of Walworth’s business is book manufacturing with a specialty in the production of yearbooks. The company also prints magazines, catalogs and general commercial work. With revenues of $50 million, the Ripon acquisition significantly moves the needle for Walsworth and brings additional catalog and magazine work to the mix, as well as direct mail and fulfillment services.

Print Management Services

Another global private equity investment firm has entered the marketing execution services business, suggesting that at least this firm of financial investors believes there is still more margin to squeeze out of suppliers in the marketing services supply chain. This time Blackstone, the third largest private equity firm in the world, has acquired a substantial minority interest in HH Global, the UK-based procurement and creative production company. Lest sellers of graphic communication products have any doubt about HH Global’s core deliverable, the company’s website makes it clear; their services, in order, are print procurement, point-of-sale procurement, packaging procurement, and promotional products procurement. Procurement.

Blackstone’s investment follows the acquisition of Williams Lea Tag by Advent International in 2017, now the tenth largest global private equity fund (See The Target Report: August 2017, Williams Lea Tag is on the Move). We expect that private equity’s entry into the mix portends even more competitive pricing pressure on suppliers when these print management service companies come knocking.



2019 December - 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
Sonoma Media Investments No Data Santa Rosa, CA Sonoma County Gazette $0.5 Forestville, CA 12/27/19 No Data Acquisition Community newspaper Link
Taylor Printing Group No Data Fredericton, NB Bounty Print (Nova Scotia Ops)
(Div. SaltWire Network)
No Data Halifax, NS 12/19/19 No Data Acquisition Commercial printing Link
Walsworth $179.3 Marceline, MO Ripon Printers $50.0 Ripon, WI 12/18/19 No Data Acquisition Commercial printing Link
Delta Media Group
(Affil. O'Rourke Media Group)
No Data Kiel, WI Ripon Commonwealth Press No Data Ripon, WI 12/18/19 No Data Acquisition Community newspaper Link
Bertelsmann $19,600 G├╝tersloh, Germany Penguin Random House No Data New York, NY 12/18/19 $675.0 Buyout of Minority Book publisher Link
The Daily Gazette No Data Schenectady, NY The Recorder
(Prop. McClary Media)
No Data Amsterdam, NY 12/16/19 No Data Acquisition Community newspaper Link
Greg Ellison No Data Denver, CO SpeedPro Denver No Data Denver, CO 12/13/19 No Data Acquisition Wide format franchise Link
Fineline Technologies
(Port co. Summit Partners)
$110.0 Norcross, GA Consolidated Printing No Data Van Buren, AR 12/12/19 No Data Acquisition Ticket printing Link
Palm Beach Media Group
(Sub. Hour Media Group)
No Data Troy, MI Gulfstream Media Group No Data Ft. Lauderdale, FL 12/11/19 No Data Acquisition Magazine publisher Link
Tenex Capital Management No Data New York, NY Orbus Exhibit & Display Group No Data Woodbridge, IL 12/5/19 No Data Acquisition Trade show displays Link
Blackstone No Data New York, NY HH Global No Data London, UK 12/3/19 No Data Minority Interest Marketing execution services Link
Bloom Family Sir Speedy No Data Westbury, NY BigTime Designs No Data Hauppauge, NY 12/1/19 No Data Acquisition Wide format printing Link


2019 December - 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:
Print Mates, Inc.
(Div. Generation Next Franchise Brands, Inc.)
12--15-19 No Data 19-17923 San Diego, CA 9th Nevada
Las Vegas
Mike K. Nakagawa Matthew C. Zirzow Photobooks & photo products
G&A Label, Inc. 12/4/19 No Data 19-32013 El Paso, TX 5th Western TX
El Paso
H. Christopher Mott Carlos A. Miranda Label printing
Chapter 7 Filings:
Octagon Graphics, LLC 12/11/19 No Data 19-11687 Safety Harbor, FL 11th Middle FL
Tampa
Michael G. Williamson  Kevin A. Comer Wide format digital & screen printing
Chapter 15 Filings:
Lecta Paper UK, Ltd. 12/19/19 19-13990 Barcelona, Spain 2nd Southern NY
New York City
Michael E. Wiles  Robert H. Trust Pressure sensitive papers


2019 December - 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
Ten Publishing Dec-19 No Data El Segundo, CA N/A None 12/6/19 Closing 19 automotive titles Link