Tuesday, June 7, 2022

Paper Industry in Transition – May 2022 M&A Activity


Paper-based Industries are in Flux

As a result of the changes occurring in the paper industry, many printing and packaging companies are struggling to procure the paper they need, the grades they require, at the time they would like, and in a sufficient quantity necessary to fulfill customer orders. This is an abrupt turnabout for many companies that have striven for years to increase customer orders, always completely confident that the required paper substrates would be available on a just-in-time basis. Distributors gladly stocked and warehoused multiple grades at their own expense, ready to ship immediately, and often delivered paper on demand with extended credit terms. Some printers even enjoyed paper stocked on their premises on a consignment basis, ensuring sufficient supply without tying up excess working capital.

At least for the foreseeable future, those days of paper plenty are over. Printing and packaging company owners report that they are spending considerable time every day just procuring needed paper stock. The efficiency inherent in longer run lengths is lost when orders are filled with multiple shorter runs requiring repetitive press makereadies. Fussy buyers have lowered their paper standards, accepting lesser grades in order to meet deadlines. Shortages are being filled in with substitute grades, sometimes several different papers used within the same print run. Distributors are enforcing paper allocation schemes based on prior years usage, hindering the growth of their printing industry customers. Credit terms have tightened considerably, with slow payers cut off or required to adhere to self-liquidating payment policies. Price increases have become routine, which must be passed on to customers who have and will consider other alternative (electronic) communication choices.

Exacerbating the problem, printing companies have been buying whatever paper they can get whenever it becomes available and stocking up. This is completely understandable as each company seeks to defend its own position and viability, but clearly this makes the problem worse for the industry as a whole. Building up inventory has its cost, occupying valuable space and increasing net working capital requirements. Eventually this will run its course, as the hoarded paper reaches an equilibrium with available space and capital. However, during the buildup phase of increased inventory levels, the hoarding tendency just makes the situation worse. Just like that other paper shortage, that of toilet paper when the pandemic broke out.

M&A Activity Hits All Levels of Paper Industry

The paper industry has been in flux over the past year, with transactions impacting all levels of the supply chain, from pulp to distribution.


Paper Making Consolidates, Specializes & Converts

Canadian-based Kruger acquired the DKP Pulp subsidiary of Domtar in a transaction that was a derivative forced sale by Domtar. The Canadian Commissioner of Competition required Domtar to divest the mill as a condition to approve its acquisition by Paper Excellence. DKP Pulp owns and operates the Kamloops Mill in British Columbia which produces softwood bleached pulp and unbleached softwood kraft pulp. Kruger announced that the acquisition will secure the supply of pulp for some of its paper mills, including in Quebec where the company is constructing two state-of-the-art tissue plants. Not limited to tissue papers, Kruger also makes coated publication printing grades, newsprint, and paper designed specifically for inkjet web presses.

In a transaction announced in May 2021, and closed late last year, 175-year-old publicly listed Domtar was acquired in an all-cash deal for $3 billion by the relative newcomer privately-owned Paper Excellence Group. Domtar, much larger and with 21 manufacturing facilities and customers in 50 countries, is now private and controlled by the much smaller British Columbia-based Paper Excellence company which operates seven mills in Canada. However, despite protestations to the contrary, Paper Excellence appears to have connections to and the backing of the billionaire Widjaja family of Indonesia, owners of Asia Pulp & Paper, among other corporate holdings. This relationship matters to those concerned with the environmental impact of deforestation and destruction of wildlife habitat, accusations that have plagued AP&P’s operations in Indonesia and Brazil.

Domtar is currently well on its way to complete the process of converting a printing and writing paper mill in Kingsport, Tennessee, into a containerboard mill. The mill was shut down in early 2020 in an effort to balance supply with demand for printing papers which had steadily declined. When the pandemic hit and the demand for printing papers temporarily plummeted, Domtar moved forward with tentative plans to convert the mill which was in the works before its acquisition by Paper Excellence. The conversion will be complete in late 2022 and the mill re‑configured to supply regional corrugators with products made from 100% recycled fiber. As a result, there will not be any more printing grade papers emanating from this mill. The general manager of the Kingsport mill recently confirmed Domtar’s long-term goal to convert additional mills to produce recycled containerboard products, including mills in Arkansas, Kentucky, and South Carolina. These are expensive capital projects, each conversion costing several hundreds of millions of dollars. Now with the backing of Paper Excellence, and the apparent family money supporting the North American investments, the handwriting is on the wall that funding will be in place to complete more conversions, further tightening supply in the market for printing grade papers.

Likely to be the most significant transaction impacting the printing industry is the sale of what’s left of Verso to Swedish paper company BillerudKorsnäs, announced in December 2021 and completed in March. The impact of this transaction will be keenly felt by the printing industry over the next seven years as BillerudKorsnäs executes its plan to convert approximately three-quarters of the acquired paper making capacity to paperboard grades designed for packaging applications. Longtime print industry veterans will recognize the name Escanaba as a production grade paper used in publications, catalogs, and commercial applications. The mill which gave its name to the paper grade, in Escanaba, Michigan, the largest in the Verso portfolio, is scheduled to be completely converted over to packaging grades. The resultant loss of capacity to produce printing grade papers will further tighten supplies to the commercial, book, direct mail, catalog, label, and publication segments of the industry.

In April, H.I.G. Capital, which has significant holdings in printing, packaging, and related companies, acquired Pixelle Specialty Solutions. Pixelle was formed in 2018 by PE firm Lindsay Goldberg with the express intent of building out a profile of specialty paper mills that eventually included four mill sites with twelve paper machines. Specialized papers produced by Pixelle include release papers, casting liners, book papers, carbonless form stock, security paper, and various other niche products. Two of the mills came from Verso Corporation, itself recently acquired. Notably, Pixelle assiduously describes its products as specialty grades and strives to find niches within the larger market for commodity printing grades.

For more detail about the transactions that have impacted the conversion to brown paper, as well as the move to specialty niches within the larger paper industry context, see Printing Papers Get Squeezed Out – February 2022).

Paper Distributors Move into Jan-San; Jan-San Moves into Paper

As the demand for printing papers declined over the past several years, the major paper distributors kept up a steady drumbeat of acquisitions, purchasing many of the formerly independent family-owned paper distribution companies. Lindenmeyr Munroe, subsidiary of industry giant Central National-Gottesman, recently acquired the much smaller New Jersey-based Paterson Papers, in a move indicative that the major pickings have already been plucked. Mac Papers & Packaging, a portfolio company of Monomoy Capital, acquired Dependable Packaging Solutions, a south-Florida based distributor of corrugated products, point‑of‑purchase displays and packaging supplies.

In another concurrent trend, paper distributors began to branch out and distribute other graphic supplies and, in some cases, acting as sales representatives for graphic production equipment including wide format machines. Further declines in demand precipitated the move by some into more generalized supplies related to the janitorial and sanitary needs of their customers’ facilities, otherwise known as the jan‑san business. Mac Paper & Packaging, Lindenmeyr Monroe, and Veritiv, all have jan-san offerings on their websites. In a transaction that portends possible moves in the other direction, Imperial Dade, a family-owned operation headquartered in Jersey City, New Jersey, acquired the Canadian business of Veritiv. Imperial Dade’s operations focus on supplies for food service, janitorial, other facility-related needs, and now print. The company has grown via acquisitions; Vertiv’s Canadian operations is Imperial Dade’s 47th purchase. Expect further blurring of the lines between jan-san and printing paper distributors, as printing paper distribution becomes less of a specialty and is subsumed under more broadly-based distribution companies.
     
2022 May - Mergers and Acquisitions in the Printing, Packaging, Paper & Related Industries

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


Party #1 Address


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


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

Deal Structure
(Intermediary)


Notes

Press
Release
Allegra Marketing Print Mail No Data Asheville, NC Daniels Graphics No Data Asheville, NC 5/31/22 No Data Acquisition
(Graphic Arts Advisors)
Commercial printing Link
Avery
(Div. CCL Industries)
$4,664 Toronto, ON Floramedia Group $62.0 Westzaan,
The Netherlands
5/31/22 $51.6 Acquisition Horticulture tags & labels Link
SugarHouse Industries No Data Salt Lake City, UT Imaginos No Data Murray, UT 5/31/22 No Data Acquisition Wide format printing Link
Quad-C Management No Data Charlottesville, VA Catapult Print and Packaging No Data Orlando, FL 5/26/22 No Data Acquisition Label printing Link
ProAmpac
(Port co. Pritzker Partners)
No Data Cincinnati, OH Specialty Packaging No Data Fort Worth, TX 5/24/22 No Data Acquisition Bags, wraps & films Link
Kruger Specialty Papers
(Div. Kruger)
No Data Montreal, QC DKP Pulp
(Sub. Domtar)
No Data Kamloops, BC 5/12/22 No Data Acquisition Paper pulp mill Link
Phase 3 Marketing and Communications $27.8 Atlanta, GA Graphic Visions Unlimited No Data Atlanta, GA 5/11/22 No Data Acquisition Commercial printing Link
Brook + Whittle
(Port co. Genstar Capital)
No Data North Branford, CT Diamond Flexible Packaging No Data Northbrook, IL 5/11/22 No Data Acquisition Flexible packaging & bags Link
Iconex No Data Duluth, GA Liberty Greenleaf No Data Phoenix, AZ 5/9/22 No Data Acquisition Receipt & packaging papers Link
Marquis Book Printing No Data Montreal, QC Logistics Services
(Div. Georgetown Terminal Warehouses)
No Data Georgetown, OH 5/5/22 No Data Acquisition Book distribution services Link

   
2022 May - Bankruptcy Filings in the Printing, Packaging, Paper & Related Industries



Filing Party

Date
Case
Filed
Pre-Petition
Revenues
(US$Mil)



Case #



Filing Party Address



Circuit



Region & City



Judge



Attorney for Debtor



Notes
Chapter 11 Filings:
Color Graphics R Us Design and Printing, Inc. 5/11/22 No Data 22-13858 Belleville, NJ 3rd New Jersey
Newark
Vincent F. Papalia David L. Stevens Printing & copying
Chapter 7 Filings:
No Chapter 7 Filings Found this Month --- --- --- --- --- --- --- --- ---

   
2022 May - Non-Bankruptcy Closures in the Printing, Packaging, Paper & Related Industries



Closed Company / Facility

Date of Closure
Pre-Closure
Revenues
(US$Mil)



Closing Address
Related Party Related Party
Address
Date Closure Public


Notes

Press
Releases
MC Packaging 9/8/22 No Data Farmingdale, NY None N/A May-22 Corrugated boxes & folding cartons Link
Benton Announcements 7/14/22 No Data Buffalo, NY None N/A May-22 Trade finishing Link
Sauers Group 7/1/22 No Data Stone Mountain, GA None N/A May-22 Commercial printing Link
Omega Printing 6/28/22 No Data Bensenville, IL None N/A May-22 Commercial printing - Tuck-in Sale Link
Hamilton Web Printing facility 6/9/22 No Data Stony Creek, ON Metroland Media
(Div. Torstar)
Mississauga, ON May-22 Newspaper printing plant Link

Sunday, May 8, 2022

When Does Customer Concentration Become an Advantage? – April 2022 M&A Activity


One of the more pernicious characteristics of many printing companies is the reliance on one or two customers that become the majority source of revenue. A loyal key customer can be the lifeline when a company is starting up. The key customer’s demands drive the company’s strategic direction, inform capital equipment investment decisions, enable the development of particular internal skill sets, and lead to product specialization. When it comes time to sell the company, customer concentration often results in a small universe of buyers restricted to those willing to take on the risk inherent in the situation. Buyers may seek discounts on enterprise value or at minimum require some form of risk mitigation in the structure of the purchase.

Occasionally the laser-like focus on serving a customer is not a risk for a buyer, but rather the very reason that the transaction makes sense. We are reminded of the long-term strategic decision made by TC Transcontinental in 2014 to transition out of the company’s traditional publishing and publication printing services and move aggressively into the flexible packaging segment. The company acquired by TC Transcontinental, Capri Packaging, had one customer, its owner Schreiber Foods, that provided 75% of revenue. To gain entry to the new market segment with one fell swoop, TC Transcontinental paid dearly at 1.85 times acquired revenues. Risk was mitigated with a ten-year commitment from Schreiber Foods, the seller and now the number one customer of the spun-off printing operation (see The Target Report – March 2014).

In this example of TC Transcontinental’s foray into flexible packaging, customer concentration became a positive attribute in the deal. Despite the seller’s customer concentration, the acquired business formed a large enough base for TC Transcontinental to establish a stake in the flexible packaging market. Supported by a contractual commitment, the customer concentration became less significant within TC Transcontinental’s much larger business.

Within four years, TC Transcontinental had built on the acquired base and successfully transformed its business to be more than 50% packaging (see Getting Flexible in Your Middle Years - April 2018).

Millennium Print Group Acquired

The Pokémon Company International, the US division of the parent Japan-based Pokémon company, acquired Millennium Print Group. Millennium has focused on the printing and finishing of trading and specialty cards. Based in Morrisville, North Carolina, the company has in excess of 830,000 square feet of production space, seven 40” Komori presses, with in-line coating and full UV curing systems. Critically, the company boasts multiple in-house slitting lines, round cornering, and overwrapping capabilities, all necessary for efficient card production.

The company was acquired by Park Communications in 2014 and has been printing Trading Card Game (“TCG”) cards for Pokémon since 2015. Both buyer and seller indicated that investments are forthcoming to serve not only the needs of Pokémon, but to continue to grow the printing operation to become the premier printer of trading cards in the world.

Created in Japan in 1996 by Satoshi Tajiri, the original Pocket Monsters was inspired by his love of collecting insects, or as he saw them, little monsters. He designed the original game as a simple contest in which cartoonish humans capture fanciful little creatures by throwing Poké Balls at them. Originally hosted on the monochrome Nintendo Game Boy system, the first images were low-res, pixelated, and black and white. From that humble beginning, the brand has transformed into a multi-media phenomenon estimated to be the highest-grossing media franchise of all time. The video game, in all its iterations, is the fourth best-selling video game with more than 380 million copies sold and one billion mobile downloads. The game inspired a television series, now the most successful TV adaptation of a video game with over 20 seasons and more than a thousand episodes shown in 183 countries. 23 animated films have been based on the characters. There are now over 900 fictional little pocket monsters and the game’s ninth and latest generation is scheduled for release this year.

Most important to Millennium and the world of print, the game was originally also launched as a collectible card game and continues to be very popular in the paper-based world. 86 sets have been published in English and almost as many in Japanese. Rare cards have sold for in excess of $350,000 and at least one unopened original box set sold for more than $1 million. No wonder that on its website Millennium promotes production site security as one of the company's differentiating factors. As of March 2021, over 34.1 billion cards have been sold worldwide.

Neither the buyer nor seller disclosed the percentage that the Pokémon TCG cards represent of Millennium’s revenue, so we cannot be sure how concentrated is the relationship. Nonetheless, the president of the Japan parent company stated that “Millennium Print Group has been an important partner to The Pokémon Company International for many years.” Clearly, Millennium’s focus on building expertise in printing quality trading cards and serving this significant, but critical, customer was instrumental in Pokémon’s decision to convert Millennium from independent vendor to captive supplier.

2022 April - Mergers and Acquisitions in the Printing, Packaging, Paper & Related Industries

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


Party #1 Address


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


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

Deal Structure
(Intermediary)


Notes

Press
Release
Snow Peak Capital No Data Boulder, CO Sandy Alexander No Data Clifton, NJ 4/26/22 No Data Acquisition
(New Direction)
Commercial printing Link
TricorBraun
(Port co. AEA Investors)
No Data St. Louis, MO PBFY No Data Brea, CA 4/21/22 No Data Acquisition Flexible packaging distributor Link
Agfa-Gevaert Group $2,001 Mortsel, Belgium Inca Digital Printers
(Div. Screen)
No Data Cambridge, UK 4/20/22 No Data Acquisition Digital inkjet printers Link
Pokémon Company No Data Tokyo, Japan Millennium Print Group No Data Morrisville, NC 4/18/22 No Data Acquisition Trading cards & packaging Link
Fortis Solutions Group
(Port co. Harvest Partners)
No Data Virginia Beach, VA Profecta Labels No Data St-Hubert, QC 4/15/22 No Data Acquisition Label printing Link
News Media Alliance No Data Arlington, VA Association of Magazine Media No Data Washington, DC 4/13/22 No Data Merger Trade association Link
Nahan No Data St. Cloud, MN Intellus Mail Division No Data Montgomeryville,
PA
4/13/22 No Data Acquisition Direct mail printing Link
Premium Label & Packaging
(Port co. Dunes Point Capital)
No Data Rye, NY HP Mile
(Incl. Privateer & Label One div.)
No Data Syracuse, NY 4/11/22 No Data Acquisition Pharma label printing Link
Peak Technologies
(Port co. Sole Source Capital)
No Data Linthicum Heights, MD Graphic Label No Data Yakima, WA 4/8/22 No Data Acquisition Label & tag printing Link
Brook + Whittle
(Port co. Genstar Capital)
No Data North Branford, CT Custom Labels Group
(Div. Cenveo Worldwide)
No Data Stamford, CT 4/8/22 No Data Acquisition Label printing Link
Midland Paper $1,000.0 Wheeling, IL J. Schmid No Data Prairie Village, KS 4/5/22 No Data Acquisition Branding & creative services Link
CCL Industries $4,393 Toronto, ON Adelbras No Data Vinhedo, Brazil 4/4/22 No Data Acquisition Label & tape printing Link
Fortis Solutions Group
(Port co. Harvest Partners)
No Data Virginia Beach, VA Label Tech No Data Somersworth, NH 4/4/22 No Data Acquisition Label printing Link
H.I.G. Capital No Data Miami, FL Pixelle Specialty Solutions
(Port co. Lindsay Goldberg)
No Data Spring Grove, PA 4/4/22 No Data Acquisition
(Houlihan Lokey)
Paper manufacturing Link
Canon Production Printing
(Div. Canon)
$3,550 Tokyo, Japan Edale No Data Hampshire, UK 4/4/22 No Data Acquisition Narrow web printing presses Link
View Newspaper Group No Data Lapeer, MI Sherman Publications No Data Oxford, MI 4/2/22 No Data Acquisition Community newspapers Link
    
   
2022 April - Bankruptcy Filings in the Printing, Packaging, Paper & Related Industries



Filing Party

Date
Case
Filed
Pre-Petition
Revenues
(US$Mil)



Case #



Filing Party Address



Circuit



Region & City



Judge



Attorney for Debtor



Notes
Chapter 11 Filings:
Access Direct Mail, Inc. 4/13/22 No Data 22-01482 Sarasota, FL 11th Middle Florida
Orlando
Caryl E. Delano Melody D. Genson Direct mail printing
Chapter 7 Filings:
Four Star Reproductions, Inc
dba Four Star Color & Red Oak Packaging
4/28/22 No Data 22-13465 Newton, NJ 3rd New Jersey
Newark
Stacey L. Meisel Leonard S Singer Folding carton printing
The Riegle Press, Inc. 4/27/22 No Data 22-30669 Flint, MI 6th Eastern MI
Flint
Joel D. Applebaum Peter T. Mooney Commercial printing
Midpoint Packaging, LLC 4/12/22 No Data 22-04230 Downers Grove, IL 7th Northern IL
Chicago
Janet S. Baer Joshua D. Greene Label printing

  
2022 April - Non-Bankruptcy Closures in the Printing, Packaging, Paper & Related Industries



Closed Company / Facility

Date of Closure
Pre-Closure
Revenues
(US$Mil)



Closing Address
Related Party Related Party
Address
Date Closure Public


Notes

Press
Releases
No Plant Closures Found this Month --- --- --- --- --- --- --- ---