Thursday, May 7, 2020

Alphabet Soup of Trade Association Mergers – April 2020 M&A Activity


The long and winding road of industry consolidation among the associations serving the printing and related industries may have finally reached its ultimate conclusion with the recently announced merger of the Specialty Graphic Imaging Association (SGIA) and Printing Industries of America (PIA). The merger was widely expected, makes sense, and is reflective of the ongoing consolidation in the highly fragmented and diverse universe of companies that make up the industry. As technology has driven convergence in the service offerings at many printing companies, that convergence in turn has created a commonality among companies that apply images to a substrate. Paper printed on an offset press, dry toner applied via laser imaging to pre-printed masters, liquid toners creating one-of-a-kind labels in rapid sequence, latex inks printed onto rolls of fabric for trade show exhibits, flatbed UV inkjet wide format printers creating retail environments, ... I could go on, but you get the idea, printing companies are offering all types of unique applications utilizing a wide variety of print technologies. Many print-centric companies no longer are limited to one strict silo of technological expertise serving a highly defined and segmented customer base. As the industry converges and consolidates, so have the many trade associations, probably best exemplified by the merger of SGIA and PIA.



The trade associations have evolved, right along with the industry segments they serve. The SGIA moniker was adopted in 1995 when the Screen Printing Association (SPA), originally established in 1948, first recognized its members’ growing use of digital technologies and changed the association name to the Screen Printing & Graphic Imaging Association International (SGIA). When SGIA consolidated the Digital Printing & Imaging Association (DPIA) and the Screen Printing Technical Foundation (SPTF) into the organization, they managed to find a name that retained the acronym, rebranding to the Specialty Graphic Imaging Association (SGIA). However, “SGIA” is apparently now on the way out since the new name for the merged SGIA/PIA organization, just announced, will be the Printing United Alliance (PUA anyone?).

The other half of the merged entity, Printing Industries of America (PIA), is also a roll-up of organizations. In 1999, PIA absorbed the research-based Graphic Arts Technical Foundation* (GATF) which traced its roots back to 1924. Unlike the SGIA, the PIA is a chapter-based organization with semi-independent regional chapters throughout the US. The alphabet soup within the PIA is extensive; there’s the PMA (Print Media Association of Missouri), the PICA (Printing Industry of the Carolinas), the PIAS (Printing Industries of the South), the WSPA (Western States Printing Alliance), the PPI (Pacific Printing Industries Association, which includes Alaska, Hawaii, Idaho, Montana, Oregon, Utah and Washington), the aptly named PINE (Printing Industries of New England), the MPIA (Manitoba Print Industry Association), the FGA (Florida Graphics Alliance), GAA (Graphic Arts Association in Delaware, Southern New Jersey and Pennsylvania; not to be confused with the GAA that publishes this report), the GLGA (Great Lakes Graphics Association), PIM (Printing Industry Midwest), PIA MidAmerica (Printing & Imaging Association of MidAmerica) and several others including my local chapter, based in New York State, the PIA (Printing Industries Alliance – yes, there is even a PIA chapter of the PIA).

And whatever happened to the venerable NAPL? Founded in 1933 by an accountant, among others, the National Association of Photo Lithographers (NAPL) brought financial discipline and standards to the new and growing industry based on offset lithography which was displacing letterpress printing as the primary method of print reproduction. By 1971, the name had become anachronistic, the “photo” prefix being superfluous. NAPL responded by a simple name change to the more inclusive National Association of Printers and Lithographers (NAPL). As digital technologies took hold of the industry, NAPL expanded beyond its traditional financial focus. The association had evolved to address a broader range of management concerns and the name was changed in 1999 to the National Association for Printing Leadership (NAPL). In 2006, NAPL absorbed the National Association of Quick Printers (NAQP), retiring the NAQP moniker for the time being.

When merger talks between PIA and NAPL fell through in 2012, the pressure to consolidate trade associations did not go away, it simply shifted to another target. In 2013 NAPL merged with the Association of Marketing Service Providers (AMSP) which was the rebranded name for the former Mailing & Fulfillment Service Association (MFSA). In the ultimate alphabet soup incarnation, the group resurrected the NAQP brand and operated for more than a year with the improbable name AMSP/NAPL/NAQP. Given the difficulty of maintaining a coherent brand identity with a 12-digit acronym, AMSP/NAPL/NAQP engaged a branding agency to conjure up a new name. The result was that in 2015 the NAPL brand disappeared into the new name for the merged entity, Epicomm. A bit more than a year later, the Epicomm name itself disappeared with its merger into Idealliance. Focused on establishing color standards and related training, Idealliance has eschewed the vestiges of trade association functions. In the meantime, the former NAQP members, primarily owners of smaller printing companies, never quite felt well-served by the merged associations, and a spin-off group had emerged to form the National Print Owners Association (NPOA). The eventual melting away of the NAPL legacy has paved a clear path for SGIA and PIA to merge and take on the mantle of being the lead trade association for the industry.

Commercial Printing and Diversified Services

As noted in last month’s Target Report, deal activity declined dramatically as the country shut down due to the outbreak of Covid-19, and we expect that it will take several months for buyers and sellers to return to the market in numbers consistent with the past (see The Target Report: The Lull Before the Storm, March 2020). However, we do expect that activity will pick up soon in the commercial printing segment, and that the first wave of transactions will be “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.

Kingston Printing, a commercial printing company in the Kansas City region with $6 million of revenues in 2019, has acquired the business of Richardson Communications Group, a slightly smaller diversified commercial printing and fulfillment services company serving regional and national clients.** Operations are being consolidated into the Kingston facility in a classic well-structured tuck-in transaction. Richardson brings national clients, selected equipment, highly qualified personnel, client-branded websites, and a sophisticated fulfillment operation to the newly combined operation.

LCP (formerly known as Lake County Press), a diversified commercial printing operation in Waukegan, Illinois with more than $38 million in revenue in 2019, has acquired the customer assets of eDOC Communications, a commercial printing company located in Mount Prospect, Illinois. Management at LCP noted that the transaction did not include taking over any operations at the eDOC facility and that LCP was not acquiring any of eDOC’s equipment. The owners of eDOC Communications pointed to the Covid-19 crisis as the critical factor driving their decision to tuck-in their customer base with LCP at this time.

_______________________________________________

Cafe Bohemia Menu, Circa 1964
* In addition to providing research and training, GATF sponsored annual industry-backed scholarships. As the recipient of a GATF scholarship, based on my academics and an inexplicable interest in spending time in the high school print shop (yes, there were real printing shops in many high schools at the time; ours included two “AB Dicks,” two “Pilot Presses,” a dark room for developing orthochromatic film, and the most interesting of all, a “Heidelberg Windmill” letterpress). In my senior year of High School, GATF treated me to an all-expense paid trip to the Print 74 trade show at McCormick Place in Chicago. Upon entering the main hall, there was a four-color Heidelberg press running full speed with all the hiss and rumble of a big press, folders clacking away, stitchers swishing along, producing beautiful full-color booklets right there on the show floor. I still remember the theme of the booklets which described the benefits of America switching to the metric system (which was a big topic at the time). GATF and that trip to Print 74 changed my life; that was it for me, this printing industry thing was exciting and big business. GATF had accomplished their goal and had another convert to the industry.

The funding for the scholarship was provided by Bell & Howell, which at the time owned the Baumfolder company, hence the connection to our industry. If I and the other three young scholarship recipients had any doubt that printing was a good industry for our serious consideration, the B&H executives made sure that top-notch treatment was part of the agenda. The most memorable part of the trip (other than the big presses) was Cafe Bohemia, billed as having “Chicago’s Most Unusual Menu” with a selection of truly unusual North American game such as grizzly bear, elk, antelope, and beaver, and also exotic selections from around the globe. The waiter informed our table that one of the specials that evening was Braised Strips of African Lion (served in a Grand Marnier Sauce). He added that, notably, this night was the last day that lion could be legally served in the US, and lion would no longer be available henceforth. Of course, I ordered the lion.

** Graphic Arts Advisors, publisher of The Target Report, served as exclusive advisors to Richardson Communications Group in this transaction.

2020 April - 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
Specialty Graphic Imaging Association (SGIA) No Data Fairfax, VA Printing Industries of America
(PIA)
No Data Warrendale, PA 4/30/20 No Data Merger Trade association Link
Kingston Printing $6.0 Eudora, KS Richardson Communications Group $5.2 Kansas City, MO 4/29/20 No Data Asset Acquisition
(Graphic Arts Advisors)
Commercial printing Link
New-Indy Containerboard No Data Ontario, CA Shoreline Container No Data Holland, MI 4/21/20 No Data Acquisition
(Ernst & Young Capital)
Corrugated boxes Link
Bobst Group $1,686 Mex, Switzerland Cito-System No Data Schwaig, Germany 4/9/20 No Data Purchase of Majority Interest Die cutting supplies Link
LCP $38.1 Waukegan, IL eDOC Communications No Data Mount Prospect, IL 4/6/20 No Data Asset acquisition Commercial printing Link


2020 April - 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:
LSC Communications, Inc. 4/13/20 $3,330 20-10950 Chicago, IL 2nd Southern NY
New York
Sean H. Lane Andrew G. Dietderich Book & publication printing
Chapter 7 Filings:
Global Web Finishing Holding Co. LLC
(Div. Graphic Systems Services)
4/9/20 No Data 20-20807 Merrillville, IN 7th Northern IN
Hammond
James R. Ahler Pro Se Web finishing systems


2020 April - 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
Domtar - Paper mill 5/5/20 No Data Hawesville, KT Domtar Corporation Fort Mill, SC 4/27/20 Temporary cessation, paper mill Link
LSC Communications - Printing facility 4/20/20 No Data Baraboo, WI LSC Communications Chicago, IL 4/17/20 Temporary cessation, catalog printing Link
Domtar - Paper mill 4/6/20 No Data Kingsport, TN Domtar Corporation Fort Mill, SC 4/6/20 Temporary cessation, paper mill Link
Quad/Graphics - Printing facilities Apr-20 No Data Several Undisclosed Quad Graphics Sussex, WI  4/2/20 Temporary cessation, publication printing Link
Four Star Color Apr-20 No Data Newton, NJ None N/A Apr-20 Folding carton printing Link
Ambrose Printing 7/17/20 No Data Nashville, TN None N/A Apr-20 Commercial printing Link
Ecoprint / BST Printing 6/11/20 No Data Silver Spring, MD None N/A Apr-20 Commercial printing Link

Sunday, April 5, 2020

The Lull Before the Tempest – March 2020 M&A Activity


Let me say it right up front – it’s difficult to write a relevant fact-based commentary about M&A transactions in the printing and related industries when the world has literally stopped in its tracks to deal with the life and death issues caused by the spread of the coronavirus. We are all just starting to understand the impact on the overall economy and implications for specific sectors. Within the context of understanding that you may have more important things on your mind right now, I’ll stick to my knitting and try to make some sense of where M&A activity is headed in our industry. As readers of The Target Report know, our monthly commentary is a gestalt of the prior month’s transactional activity, an analysis of trends based on that activity, and modest suggestions of what we believe those trends tell us about the future of the printing and related businesses. However, given the seismic nature of the current crisis, the rear view mirror is less useful, so we’ll depart from our usual style this month, look backwards just a bit, and offer our view through the front windshield.

Transactional activity came to a screeching halt in the middle of March. With only two exceptions (the approval of Case Paper’s asset purchase in a 363 sale in a bankruptcy proceeding, and a sale of International Paper’s containerboard mills and converting facilities in Brazil) no new transactions were announced after March 13th in the segments we are concerned with. Not coincidentally, the day before the “music stopped,” the stock market had its biggest fall since 1987, followed by another record decline the next Monday. The storm clouds were clearly gathering before that, but due to the momentum and time frames that occur in most M&A transactions, activity during the beginning of March was reasonably normal; the deals that did close were already well on the way to completion as the virus began its spread out of China and across the globe. That momentum has now all but ceased and we have entered a very quiet period for transactional activity. The quiet will not last.

Regardless of how the medical and economic impact of the coronavirus plays out, there is a disruptive storm on the horizon. Transactional activity will likely not return to pre-Covid-19 levels for quite a while. Based on our research and what we see over the past month here at Graphic Arts Advisors (GAA), it's our view that the Covid-19 pandemic has created a sudden and dramatic shift in the landscape for M&A transactions in our industry. Several transactions that we were working on between financially healthy buyers and sellers that were scheduled for closing in March and April have been put on indefinite hold, at least until the owners see a path back to some level of normalcy. At the same time, clients that were financially challenged before the virus hit have accelerated the sale process and/or have begun seeking alternatives to stem the losses that are sure to come. These trends, pausing healthy transactions and speeding up resolution of difficult situations, will continue, at least in the near future, and possibly longer.

Bankruptcy filings have not yet shown a significant uptick. We found four Chapter 7 filings in the industry in March, which is only slightly more than the average over the past several months. Three of the companies that filed for liquidation were publishers: a newspaper in Shreveport, Louisiana, a specialty magazine publisher in Pittsburgh, and a book publishing company in San Antonio, Texas. (The fourth was an online platform aimed at commercial printing companies, seeking to provide a source for apparel and promotional printing.) These bankruptcy filings were probably all in the works before the coronavirus was a full-blown crisis. The slight increase in Chapter 7 filings is likely only a precursor to a more significant uptick in companies seeking a court-supervised liquidation process.

Interestingly, there were no new Chapter 11 filings of companies in the industry seeking to restructure and/or sell assets under the supervision of the Bankruptcy Court. This will change. As reported in Bloomberg, LSC Communications has been preparing for a Chapter 11 bankruptcy filing. The company’s stock has fallen to less than one tenth of one percent of its high since being spun out of R.R. Donnelley in 2016, and the company’s debt is trading in distressed debt markets at a deep discount to face value. When LSC files, there very well could be a ripple effect to its suppliers, many of which will be too small to go through the difficult and expensive Chapter 11 reorganization process.

There was only one non-bankruptcy plant closure in March. CJK Group, the national consolidator of printing companies, many of which were financially challenged when acquired by CJK, announced the shut-down of Sinclair Printing, its Los Angeles commercial and book printing facility. In the announcement about the closing, CJK specifically named the Covid-19 pandemic as a major factor in its decision to consolidate the Los Angeles production into its other facilities, deferring the decision as to whether the shutdown is permanent.

Other non-bankruptcy plant closures are already in the planning stages. While not being specific yet with how many plants are ceasing operations, Quad/Graphics has indicated that employees are being furloughed and operations will be shutdown at several manufacturing sites. In addition, Quad has cut executive salaries, delayed capital projects, suspended the dividend and drawn down under its credit facility to increase cash on hand. Quad has stated that the closures are temporary. Companies without the resources of a Quad may have to make more permanent decisions to close down operations via non-bankruptcy wind-downs and liquidations.

What we Expect at GAA 

Transactions “between equals” will go quiet until some level of normalcy returns to the market. Some transactions will be put on hold, while others will be broken off completely. Owners of successful companies who were ready to exit will not want to sell into a downward trending market. Successful companies that were active acquirers will not want to pay prices based on out-of-date market multiples. The market stasis is over. The even playing field between buyers and sellers that has existed for the past several years will tilt in favor of buyers. Companies with strong balance sheets or well-funded financial backers will be in especially strong positions to negotiate favorable pricing and terms.

Valuation multiples will trend downward, especially in the weaker segments such as commercial printing and publishing (those that rely primarily on printed vehicles to deliver their content). As noted in previous Target Reports, the market had already softened a bit for wide format printers that cater to the retail market. The mass closures in retail will certainly impact those companies focused on retail onsite signage, point-of-purchase, as well those catering to events with signage and banners.

It’s too soon to tell if the public will develop a long-lasting aversion to touching mail and what will be the impact on direct mail companies. However, in the meantime the USPS expects a rapid drop in mail volumes (while also reporting that deliveries of packages from online purchases has increased). Articles are already starting to appear in the trade press about a dramatic decline in advertising revenues, especially impacting local papers and magazines, and further accelerating the transition to digital channels and online shopping. It remains to be seen if these changes will be permanent.

Manufacturers of folding cartons, label printers and flexible packaging companies will likely see less decline in valuations, but the heady days of the past several years with some companies reaching double-digit valuation multiples may be a thing of the past as everybody recalibrates. Unlike some segments that may not recover fully, packaging will rebound and track the overall economy. As noted last month, activity in the corrugated box segment has remained strong and we expect that to continue due to increased online shopping (see The Target Report: Catching the Wave in Corrugated Cartons, February 2020.

Buyers with solid balance sheets will get excited about the return to a strong buyer’s market and will seek out tuck-in opportunities. At GAA, we are already receiving calls and emails from owners of companies who perceive that conditions have changed to a more favorable market for acquisition and consolidation. Buyers eager to take advantage of the situation are making their position known.

Owners of distressed companies will imagine that getting together with another distressed company will solve their problems. In a last-ditch effort to maintain an equity interest in their enterprise, some owners will try to “tie two stones together in an attempt to float.” Owners of companies that were already “treading water,” but not necessarily fully distressed, will put off any decisions until they exhaust the monies from recently passed Federal aid. Many will then begin to fail anyway and need to do something.

Secured lenders will be patient while the Federal monies pour out, but will slowly begin to push their most troubled debtors into workout. Portfolio managers at traditional banks and other cash flow lenders may be encouraged by their senior executives, credit managers and corporate strategists to push printing companies out of their portfolios (it won’t be the first time). Trade creditors will not want to kill their customers with excessive credit restraint but will likely watch their credit exposures closely and selectively exert pressure on their weakest customers.

While we are confident that the storm ahead will pass, it remains to be seen if we are in for a full hurricane season, or simply a passing summer storm with another clear patch on the other side. In any event, the windshield is already a bit blurry, so be prepared to turn the wipers up to full speed.


2020 March - 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
Klabin$2,500Sao Paulo, BrazilCorrugated packaging business
(Div. International Paper)
No DataMemphis, TN3/29/20$64.7AcquisitionContainerboard & box plantsLink
Case PaperNo DataHarrison, NJAPI Americas Inc.
(Sub. API Group Limited, UK)
No DataLawrence, KS3/25/20$6.0363 Sale in Ch. 11Metallic foil & substratesLink
Santa Maria News MediaNo DataSanta Maria, CAThe Hanford Sentinel (+3 titles)
(Prop. Lee Enterprises)
No DataHanford, CA3/13/20No DataAcquisitionCommunity newspapersLink
Monomoy Capital PartnersNo DataNew York, NYMac PapersNo DataJacksonville, FL3/13/20No DataAcquisition
(Mesirow)
Paper distributionLink
E.F. Marketing GroupNo DataSan Antonio, TXAccu-PrintNo DataSan Antonio, TX3/10/20No DataAcquisitionCommercial printingLink
ProMach
(Port co Leonard Green & Partners)
$827.0Covington, KYPharmaworksNo DataOdessa, FL3/9/20No DataAcquisitionBlister packaging machineryLink
Times Media GroupNo DataTempe, AZThe Foothills FocusNo DataNew River, AZ3/8/20No DataAcquisitionCommunity newspaperLink
Lux Global Label
(Port co. Resilience Capital)
No DataLafayette Hill, PALabelworxNo DataLevittown, PA3/5/20No DataAcquisitionLabels & flexible packagingLink
Moore$700.0Tulsa, OKColortree (Mfg. facility)No DataHenrico, VA3/5/20No DataAsset AcquisitionDirect mail & envelopesLink
DG3 Group
(Port co. Resilience Capital)
$143.0Jersey City, NJRyan Edwards CommunicationsNo DataSouthampton, UK3/4/20No DataAcquisitionManaged print servicesLink
SignetNo DataAkron, OHRoswell BookbindingNo DataPhoenix, AZ3/4/20No DataAcquisitionBindery servicesLink
Thysse$11.1Oregon, WISign EdgeNo DataMiddleton, WI3/3/20No DataAcquisitionWide format printingLink
Western Shield LabelNo DataRancho Dominguez, CALabel Print TechnologiesNo DataMogadore, OH3/2/20No DataAcquisitionLabel printingLink


2020 March - 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:
Lammert, Inc.
(DBA HPN Books)
3/13/20 No Data 20-50585 San Antonio, TX 5th Western TX
San Antonio
Craig A. Gargotta Ronald J. Smeberg  Book publishing
Inklocker, Inc. 3/12/20 No Data 20-10885 Costa Mesa, CA 9th Central CA
Santa Ana
Erithe A. Smith Douglas A. Plazak Online promo printing platform
Rotating Mass Media, Ltd. 3/5/20 No Data 20-20846 Pittsburgh, PA 3rd Western PA
Pittsburgh
Gregory L. Taddonio Francis E. Corbett Specialty magazine publishing
Jonesboro Newspaper, Inc. 3/2/20 No Data 20-30281 Jonesboro, LA 5th Western LA
Shreveport
John S. Hodge James W. Spivey, II Newspaper publishing


2020 March - 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
Sinclair PrintingMar-20No DataLos Angeles, CACJK GroupBrainerd, MNMar-20Commercial & book printingLink