Wednesday, October 7, 2020

CJK Goes Global as Cenveo Unwinds – September 2020 M&A Activity


CJK Group, the grand master consolidator of formerly distressed assets in the book manufacturing and journal printing segments, adds another chapter to its book of business with the acquisition of Cenveo Publisher Services and Cenveo Learning. The acquired business includes offices in London and four locations in India, creating for the first time a global presence for CJK. The acquired business units will be merged with its existing content services businesses, Sheridan Journal Services and the hosting platform Sheridan PubFactory. The various business units will now all be rolled up together and rebranded as KnowledgeWorks Global.

In addition to going global, the new combined business unit pushes CJK further upstream in the production cycle of bringing books and journals to its customers. Content services offered include project management, content development, editorial services, peer review management, art and design services, rights and permissions management, translation and accessibility services, eLearning, online hosting and presumably transitioning completed documents to one of CJK’s production facilities for printing, binding and distribution.

As we have noted in past Target Reports, the CJK Group has stayed laser-focused on acquiring print assets in the book and related print production segments, often swooping in to save, revitalize or absorb ailing companies (most recently Thomson-Shore), stalled roll-ups (Blackford Capital’s Printing Consolidation Company), treading water portfolio companies (Jefferies Capital’s Sheridan Group), corporate orphans (Quad’s book manufacturing plant), and this latest transaction, the product of a formerly bankrupt restricted roll-up in the process of unwinding itself (Cenveo’s aforementioned content services).
























CJK was featured in our report as recently as this past July, noted for staying the course on the company’s strategic acquisition track in the midst of what arguably was the point of least visibility forward out of the Covid-19 induced recession (see The Target Report: Buyers are On The Move and On Track – July 2020). With the benefit of hindsight and considering the emerging consensus that there is now a shortage of book manufacturing capacity, CJK’s acquisition of Quad’s one million square foot book printing and binding facility in Versailles, Kentucky looks like a smart move. Nonetheless, we suspect it took both a good hard reality check and a big dose of believing in their strategic plan for the CJK team to proceed with the deal back in April, May and June of this year, announcing the completed transaction on July 1st. (And, yes, you read that correctly, there is at least one segment of the printing industry in which demand currently outstrips capacity and that is book manufacturing!)

The company has honed its expertise in acquiring assets that are impaired, or in the case of specialty book printing company Thomson-Shore, bankrupt. CJK executed a textbook strategic acquisition of a distressed company’s assets under the 363 provisions of the US Bankruptcy code by extending loans to Thomson-Shore both before and after the filing of the Chapter 11 bankruptcy (see The Target Report: CJK Group Opens Next Chapter with Loan-to-Own Strategy – March 2019). By taking on the “stalking horse” position, they controlled the process and were in the best position to bid on the assets and ultimately prevail in the purchase.

The latest acquisition, the purchase of Cenveo’s Publisher Services, appears to dovetail nicely into the suite of services offered by CJK’s Sheridan division which assists publishers of scholarly and technical journals, books, magazines, and catalogs. These service offerings, at both the acquiring and acquired entities, sit on top of strong technology platforms, which will now benefit from the combination.

On the other side of the transaction, the seller, Cenveo, continues to unwind the diverse range of print-centric assets that were seemingly pasted together willy-nilly throughout the late 1990’s and 2000’s. The sale of its technology-based content services is one of a continuing parade of divestitures, both before Cenveo’s bankruptcy and after its emergence from bankruptcy as a private company in September 2018. (see The Target Report: The De-Evolution of Cenveo – April 2019).


Commercial Printing and Diversified Services

BR Printers, based in San Jose, California, acquired the on-demand printing company Content Management Corporation located in Fremont, California. Both companies offer a wide range of commercial services, including print, direct mail, wide format, promotional items, kitting and fulfillment services, with online customer storefront portals.

Mainline Printing, located in Topeka, Kansas, has acquired the printing assets of Go Modern which was owned by Advisors Excel, a marketing firm focused on assisting financial advisors to build their individual practices. The Go Modern division, which provides marketing and promotional products, decided that its printing production capability was not core to its business, and will now outsource its print related services to Mainline. Selected equipment and print production employees will move to Mainline’s facilities. The promotional products business and related employees will remain with Go Modern. As noted in our report last month, approximately 50% of transactions in the commercial printing segment are similarly structured as a “tuck-in” from one entity to another as the industry continues to consolidate.

Packaging - Labels

Essentra Packaging, a division of Essentra, a UK-based global diversified engineering and parts manufacturer, has acquired 3C! Packaging in Clayton, North Carolina. The acquired company prints and produces folding cartons, product information inserts, blister packs, flexible packaging, and labels, primarily for the pharmaceutical industry. The company has a differentiating factor with its sterilization technology.

Texas-based Frankston Packaging Company has acquired Paco Label Systems. Frankston has grown from primarily a folding carton company to a producer of a diverse range of products including pressure sensitive labels. Consistent with the majority of acquisitions in the packaging segment, the Paco plant will continue operations as a separate additional facility for Frankston.

Meyers, based in Minneapolis, announced the acquisition of the sheetfed business unit of Insignia Systems. Meyers specializes in printed signage, large format printing, prime labels, retail displays, folding cartons, and corrugated packaging, with a focus on marketing in retail environments. The seller, Insignia Systems, provides a range of marketing services and in-store printed promotional items to grocery and similar consumer products outlets such as right-angle signs that fit easily into standard store shelf channels, and stand-up product displays. The acquired business unit produces cut & stack labels and other in-store products and furthers Meyer’s expansion into the grocery channel.

Update: The Impact of Covid-19

Although there were fewer transactions in September than in August, which is unusual, there was still a steady, albeit reduced, drumbeat of M&A activity, and most of the activity that is occurring appears to be driven by clear-eyed strategic thinking and not by overreactions to the dramatic dips in revenues that many printing companies experienced. We are beginning to hear from some companies that sales are almost back to 100% of pre-Covid-19 revenue levels, and in some instances, at or above last year’s results. The key differentiating factor is clearly what particular industry a printing company serves and how those customers have been impacted by the shut-downs. Theatre, museums, and other venue-centric promotions are virtually non-existent, political work is booming (for now, at least).

There were a couple smaller commercial printers that closed up shop. News Corporation, the publisher of The Wall Street Journal and The New York Post, among other titles, is consolidating its New York City printing plants, closing up the Bronx location and moving the work to its Queens plant. LSC Communications announced another closing, this one its book manufacturing plant in Kendallville, Indiana (LSC simply cannot seem to get its timing right - as noted above, publishers are bemoaning the shortage of book production capacity! Let’s hope that Atlas Holdings prevails in its stalking horse bid for LSC Communications and the company emerges from bankruptcy well-positioned to stop the hemorrhaging of its post-RRD existence.)

Speaking of bankruptcies, we found no new bankruptcy filings in September in the printing, packaging, or related industries. This has not happened since August 2018 when the economy was still chugging along in growth mode. However, we do expect that there will be, at some not too distant time, a robust consolidation phase in some print segments, driven by the recession, and exacerbated by the forced transition to electronic media which has changed user habits, some probably permanently. Commercial printing and publication printing will be most affected. 

2020 September - 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
Mainline Printing No Data Topeka, KS Print Operations
(Div. Advisors Excel)
No Data Topeka, KS 9/30/20 No Data Asset Acquisition Commercial Printing Link
LLFlex No Data High Point, NC Hamden Papers No Data Holyoke, MA 9/29/20 No Data Asset Acquisition Specialty paper converting Link
BR Printers No Data San Jose, CA Content Management
Corporation
No Data Fremont, CA 9/25/20 No Data Acquisition Commercial printing Link
Essentra Packaging $226.7 Nottingham,
England
3C! Packaging No Data Clayton, NC 9/24/20 No Data Acquisition Folding cartons & labels Link
Frankston Packaging No Data Frankston, TX Paco Packaging No Data Tyler, TX 9/17/20 No Data Acquisition Labels & shrink sleeves Link
Atlas Holdings $6,000 Greenwich, CT LSC Communications $3,326 Chicago, IL 9/15/20 No Data 363 Sale in Ch. 11 Book & publication printing Link
Meyers No Data Minneapolis, MN Custom Print Solutions
(Div. Insignia Systems)
No Data Minneapolis, MN 9/11/20 No Data Acquisition Cut & stack label printing Link
CJK Group No Data Brainerd, MNCenveo Publisher Services
(Div. Cenveo Worldwide)
No Data Stamford, CT 9/8/20 No Data Acquisition Content management Link
Paxton Media Group No Data Paducah, KY Wilkes Journal-Patriot
(Prop. Carter-Hubbard Publishing)
No Data North Wilkesboro,
NC
9/8/20 No Data Acquisition Community newspaper Link
Schneps Media No Data New York, NY Dan's Papers No Data Southampton, NY 9/3/20 No Data Acquisition Community newspaper Link
PlanetArt $370.0 Paris, France CafePress
(Div. Shutterfly, Port Co. Apollo)
No Data Louisville, KY 9/1/20 No Data Acquisition Online promo items market Link


2020 September - 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:
No Chapter 7 Filings Found this Month --- --- --- --- --- --- --- --- ---


2020 September - 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
News Corp - Printing facility 2021 TBD No Data Bronx, NY News Corp New York, NY 9/21/20 Consolidating print to Queens facility Link
LSC Communications - Printing facility 12/23/20 No Data Kendallville, IN LSC Communications Chicago, IL 9/1/20 Book manufacturing Link
Dual Graphics 10/15/20 No Data Brea, CA None N/A Oct-20 Commercial printing Link
Printed Products 10/6/20 No Data Tulsa, OK None N/A Oct-20 Commercial Printing Link

Tuesday, September 8, 2020

The Target Report Annual Recap – August 2020 TTM M&A Activity



As readers of The Target Report know, we view the printing, packaging, and related industries from the perspective of M&A transactional activity. Over the past nine years, we have chronicled, logged, and commented on the robust merger and acquisition activity in the print-centric business segments. We traditionally take a break at this time of the year and depart from our usual review of the prior months’ deal activity to take a look back at the past twelve months from a macro high-level perspective. Our goal is to identify some long-term trends. Which segments have experienced more, or less, deal activity? What are the trends in rationale behind acquisition activity? Are acquirers adding facilities to their networks, or opportunistically folding acquisitions into their existing facilities?

We review, categorize, sort, count and chart the data we have amassed, comparing the trailing twelve months (“TTM”) ended this August to the prior twelve months. In M&A terms, the past twelve months were definitely quieter than the twelve months ended August 2019, with approximately 14% fewer transactions than last year, which in turn had 8% fewer transactions than the prior year. As you can see from the chart below, deal activity started off 2020 with a bang, came to a screeching halt in March and April, and has now begun to trend back to normal. There were sixteen transactions in August, the same number as last year.


Of course, despite some returning semblance of normalcy, this year has been different, especially the past six months. The outbreak of Covid-19 has changed the economic landscape. Building personal relationships between seller and buyer are a fundamental element of most transactions and form the foundation for the most successful deals. Transactions are more difficult to bring to a close in a virtual world. Yet, despite the challenges, deals are getting done. As noted in our past two reports, buyers are marching forward, maintaining their strategic focus and closing deals. It is too soon to ascertain what the eventual impact of Covid-19 will be on the print-centric industries, yet some trends are beginning to emerge as evidenced by our research on transactional activity.

The bright spot is clearly packaging, with buyers exhibiting very keen interest in labels, corrugated cartons and to some extent folding cartons. There has been continued participation in the market by well-funded private equity firms and large corporate buyers. Flexible packaging remains highly desirable for buyers, but fewer deals are getting done involving flexible packaging as the supply of target companies is limited compared to other packaging segments.

Activity is up in the wide format segment; however, we make note of an increase in the number of tuck-ins in the wide format business, indicative of overcapacity, something almost nonexistent not too long ago. Presumably, some of this activity is due to the decline of “brick and mortar” retail, greatly exacerbated by the Covid-19 shutdown. This double-whammy has created a challenging situation for the wide format shops that are focused on retail signage and display. There was a flurry of printing the ubiquitous floor stickers and window signs announcing and enforcing the new social distancing requirements, but that has likely run its course by now.

Publishing in print form, with the exception of books, is in a virtual free-fall, with newspapers either headed online or closing down completely. Several major newspapers now claim significantly more subscribers to their online content than to their printed editions. More telling than numbers of subscribers, some have now even crossed the line where revenues from online subscriptions exceed those from print. Those “digital dimes” are adding up, while “analog dollars” continue to decline. That trend will continue. Magazines face similar challenges as advertisers shift dollars online and readers follow. In the case of catalog printers, print customers hit the “pause button” hard and fast as soon as the lockdowns began. How many catalogs do you get in the mail anymore?

Commercial printing establishments appear to be in a holding pattern for now, with deal activity appreciably less than in recent years. Many owners we talk with in the commercial segment are waiting to see if the good times will roll again when the virus is brought under control. Nonetheless, many are expecting the weaker players to begin to falter and seek shelter in a sale to a stronger player. That is consistent with our expectation; activity will increase in the commercial segment. Consolidation will pick up steam as government subsidies run out. However, we note that direct mail printing companies, especially those that can manage, manipulate, store, and utilize data to drive improved results for their customers, are likely an exception and in a class by themselves, apart from the more generalized undifferentiated “job-shop” commercial printing companies.



Commercial Printing

We did a deep dive into the rationale behind the transactions in the commercial printing segment and we find that the majority are once again 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 twelve 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. As a percentage of total deals announced in commercial printing, tuck-ins dropped to 50%, compared to a whopping 70% last year.

There were eight acquisitions in the commercial printing segment where the acquired facility was important to the buyer and will remain in operation, four of these were sold to new owners that acquired the company in a fully operating mode. Two of those new owners were ESOPs transitioning ownership to the employees.

There were two acquisitions where the acquirer noted that the purchased company added to their service offerings, as well as two deals where the stated logic was to expand geographically. Of all twenty-four transactions that we found in the commercial printing segment, none had a private equity sponsor and consequently there were no companies purchased to form a new “platform” for building out a larger company.



Wide Format and Retail Display

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, but consistent with last year, about of quarter of the deals were tuck-ins, with the seller’s plant shuttered and production consolidated in the buyer’s existing facility.


Three buyers cited adding or greatly expanding wide format as a service offering as the logic supporting the acquisition. Two buyers noted geographic expansion as important to the decision to move forward. Five transactions involved participation by private equity in the deal, with three of those creating a new platform company for the fund. These trends, especially the involvement of financial buyers and the establishment of platforms for bolting on acquisitions, are indicative of more M&A activity and consolidation on the horizon for wide format printing companies. 



Packaging

The picture that emerges in the packaging segment is very different. Of the thirty-eight transactions that we recorded over the past twelve months in the packaging segment, only four were reported to be tuck-ins, two that produced labels and two that manufactured corrugated boxes. 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.


Private equity was involved in fourteen 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. We noted only one new platform established by private equity in packaging, compared to no new platforms last year. This high level of private equity activity, coupled with only one new platform started over the past two years indicates 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.

Nine of the buyers noted that the acquisition brought new services to the company, or significantly expanded on a small beachhead previously established in that service. For example, one high-end prime label printing company acquired a digital label printing company rather than continue to build out the internal effort. In nine instances, geographic expansion or diversity of the acquired locations was also noted as a key element in the buyer’s logic.


As noted earlier, activity with the packaging industry was predominately in the labels business, with many of the transactions marking the end of family ownership of independent single-location companies. There was also a steady flow of corrugated carton and paperboard folding carton companies coming to market and finding buyers.




Direct Mail

Transactional activity in direct mail printing was on the upswing over the past twelve months, with a total of nine deals announced, versus only five the prior year. The majority of these were additional facilities for the acquirers. Two were tuck-ins, compared to no tuck-ins last year.


Of special note, four of the transactions in direct mail involved private equity backers, and two of those were new platforms. While deal activity is not as robust as in the wide format segment, indicators are beginning to flash that we will see some more consolidation occurring in the direct mail segment.



Challenged Segments

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).

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 packaging industry consolidates.

Despite the outbreak of Covid-19, the number of bankruptcies for the past twelve months decreased to 36 filings, down from 41 the prior year, which was down from 45 filing the year before that. (We will continue to closely monitor this activity as the economic impact of the Covid-19 virus plays out – stay tuned to The Target Report.)


And finally, 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. Also consistent with the bankruptcy filing data, the number of non-bankruptcy closures in the past twelve months declined from the prior year, including the commercial printing segment. As also might be expected with the closing of the Cenveo (nĂ© Cadmus) plant, the closure of LSC plants in preparation for the company’s bankruptcy filing, and Quad’s quick response to Covid-19, there was an uptick of closures of publication and catalog printing plants.



2020 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
Arkansas Democrat-Gazette
(Prop. WEHCO Newspapers)
No Data Little Rock, AR Pine Bluff Commercial
(Prop. Gannett)
No Data Pine Bluff, AR 8/31/20 No Data Acquisition Community newspaper Link
Carmel Hill Acquisitions No Data Ann Arbor, MI TGI Direct No Data Flint, MI 8/31/20 No Data Acquisition Direct mail & fulfillment Link
Mill Rock Packaging Partners
(Port co. Mill Rock Capital)
No Data New York, NY TrojanLitho No Data Renton, WA 8/25/20 No Data Acquisition Folding cartons Link
Hemlock Printers / PDI Group
(Joint venture)
No Data Burnaby, BC
Kirkland, QC
PrismTech No Data Burnaby, BC 8/25/20 No Data Acquisition Wide format printing Link
Sunset Printing & Brand Mngt. No Data Wharton, NJ Remco Press No Data North Bergen, NJ 8/21/20 No Data Asset Acquisition
(Graphic Arts Advisors)
Commercial printing Link
Accelerate360
(Port co. Chatham Asset Mngt.)
No Data Smyrna, GA American Media
(Port co. Chatham Asset Mngt.)
No Data New York, NY 8/21/20 No Data Merger Tabloid magazines Link
Strategic Factory No Data Owings Mills, MD High Mountain Signs No Data Baltimore, MD 8/17/20 No Data Acquisition Signs & wide format printing Link
Intellicor No Data Lancaster, PA Printing operations
(Div. Cenveo)
No Data Lancaster, PA 8/12/20 No Data Acquisition Publication printing Link
Intellicor No Data Hurlock, MD Printing operations
(Div. Cenveo)
No Data Lancaster, PA 8/12/20 No Data Acquisition Fulfillment & digital printing Link
Kornit Digital $159.6 Rosh-Ha`Ayin, Israel Custom Gateway No Data Macclesfield, UK 8/11/20 No Data Acquisition Workflow software Link
CCL Industries $3,936 Toronto, ON Graphic West International $42.0 Horsholm, Denmark 8/10/20 $36.0 Acquisition Folding cartons (digital print) Link
Domino Printing Sciences
(Div. Brother Industries)
$571.6 Cambridge, UK Lake Image Systems No Data Herts, UK 8/5/20 No Data Acquisition Visual inspection systems Link
CERM Mngt Team No Data Oostkamp, Belgium Heidelberg $2,605 Heidelberg, Germany 8/5/20 No Data Mngt. Buyout MIS system for printing Link
Arden Software No Data Stockport, UK Cimex No Data Belchertown, MA 8/5/20 No Data Acquisition Packaging CAD/CAM systems Link
Sonoco $5,370 Hartsville, SC Can Packaging $27.0 Habsheim, France 8/3/20 $49.0 Acquisition Paper containers Link
RPI
(Port co. Riverlake Partners)
No Data Seattle, WA Blurb No Data San Francisco, CA 8/3/20 No Data Acquisition E-commerce site & system Link


2020 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:
And Ink 1, LLC 8/14/20 No Data 20-31904 Knoxville, TN 6th Eastern TN
Knoxville
Suzanne H. Bauknight Thomas Lynn Tarpy Apparel printing
Arandell Holdings 8/13/20 $103.0 20-11941 Menomonee Falls, WI 3rd Delaware
Wilmington
John T. Dorsey Elizabeth L. Eddy Catalog printing
Chapter 7 Filings:
Interstate Graphics of Morristown, Inc. 8/27/20 No Data 20-12311 Morristown, TN 6th Eastern TN
 Chattanooga
Nicholas Whittenburg John P. Newton, Jr. Commercial printing

 

2020 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
Alvin & Co. 9/4/20 No Data Bloomfield, CT None N/A 8/27/20 Reprographic & art supplies Link