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 --- --- --- --- --- --- --- ---

Tuesday, April 5, 2022

Label Roll-Ups are Red Hot; Are Folding Cartons Next? – March 2022 M&A Activity


Merger and acquisition activity in the label and flexible packaging printing and converting segments has been on fire, with several PE-backed roll-ups competing to pick up family-owned and managed companies. As the market becomes more crowded with competing PE platforms, several roll-ups were inevitably themselves rolled up in secondary and tertiary buys (see Private Equity Fuel$ Consolidation of Label Industry – September 2021).

The activity in the label and flexible packaging segments continues unabated, month after month, and March was no exception. All American Label & Packaging, with backing from Heartwood Partners, merged with Western Shield Label & Packaging, itself a serial acquirer of label companies. C-P Flexible Packaging, with financial sponsorship of First Atlantic Capital, acquired Bass Flexible Packaging. The Jordan Company, a PE firm with deep experience in packaging films and paperboard mills, acquired Five Star Holding, a Texas-based group of companies that produce flexible packaging, printed films, and plastic bags. H.I.G. Capital, the global behemoth fund and no stranger to print-centric businesses, has rebranded its new flexible packaging platform simultaneously with the purchase of TechFlex Packaging in Gardena, California. Operating now as DazPak, the new entity incorporates the former acquisitions of Action Packaging and Signature Flexible Packaging, and certainly is in the hunt for more.

As we noted in our September annual review of M&A activity in the printing, packaging and graphic communications industries, our expectation has been that the super-heated acquisition activity in the label and flexible packaging businesses would likely be mimicked by an increased rate of consolidation within the folding carton manufacturing segment. Activity will be most pronounced in the lower middle market that is populated by mature privately owned businesses. While the folding carton business may never experience the frenzy of activity occurring in the label business, nonetheless increased consolidation in folding cartons is now underway and, in our opinion, is likely to increase.

Private Equity is the Driver

As with labels, the fuel igniting the fire in folding cartons is the institutional capital injected into the market by the multitude of private equity funds seeking to differentiate themselves and put their investor’s money to good use within limited time frames. Packaging, in general, has several of the characteristics that many funds seek: recurring revenues, reasonably predictable margins, diverse customer verticals, and a highly fragmented landscape of companies to acquire, many of which are privately owned and operating in the fertile ground of the lower middle market.

With low interest rates and plenty of cash sloshing around the economy, old-fashioned financial engineering has been replaced by the platform-and-bolt-on strategy. Buy a good sturdy company, add on an appropriate acquisition, remove duplicative costs, institutionalize the back-office functions, and repeat. Funds seeking a coherent investment thesis have landed on packaging as a desirable and suitable business to which they can apply this basic roll-up strategy.

As in other segments of the printing industry, aging owners of folding carton manufacturers often do not have a qualified or interested next generation to pick up the mantle of leadership or that want to assume the financial risk inherent in private company ownership. Faced with the need to embark on another cycle of investment in increasingly sophisticated capital equipment, owners instead want to exit ownership, take chips off the table, and retire from the business. Fertile ground for consolidation, indeed.

Lewisburg Printing Company Enters the Game

Lewisburg Printing Company announced that it was merging Huston Patterson into its fold, along with Sigma Graphics, a subsidiary of Huston Patterson. The acquired company operates from its primary location in Decatur, Illinois, with an additional plant in Ottawa, Illinois. The acquired company perfectly fits the roll-up bolt-on criteria. With a history dating back 115 years, Huston Patterson began as the commercial printing division of the local newspaper publisher. Acquired by the current selling family in 1961 as a small letterpress printing company, three generations have managed the transition of Huston Patterson into a producer of packaging and retail display components.

Products produced at Huston Patterson include litho labels and top sheets for mounting on corrugated stock to produce boxes with high quality graphics. Differentiation is provided with a fleet of large format offset presses capable of printing sheets large enough to wrap a box. Similar to other printing companies that run large format offset presses, Huston Patterson also produces top sheets used to manufacture retail displays. With 80 employees, the acquired company is in the sweet spot for bolt-ons in a roll-up strategy, not large enough to be purchased as a new platform company, but big enough to make an attractive addition to an existing PE-backed company ready to commence its roll-up strategy.

Lewisburg Printing itself was acquired in April 2021 by Radial Equity Partners, a New York-based private equity firm. The Radial Equity Partners team members are no strangers to the packaging business, having worked together at predecessor private equity firms leading investments in Alpha Packaging, Chesapeake Corporation, Mold-Rite Plastics and Multi Packaging Solutions. Lewisburg Printing has 250 employees operating large format offset presses and locations in Tennessee and Texas, and as such, is the ideal platform company on which to build out another success story.

The Competition

Oliver Printing & Packaging has a significant head start in this current class of PE-backed folding carton roll-ups. The Oliver family sold a controlling interest to Pfingsten Partners in May 2016. With its roots in commercial printing, Oliver had methodically built an expertise in printing and finishing folding cartons. Using Oliver as its platform, Pfingsten set about building out the platform in 2017 with the acquisition of folding carton manufacturer Pohlig Packaging in Richmond Virginia, followed by the purchase of DISC Graphics located on Long Island in New York State. DISC started as a specialized printing company producing record jackets and marketing collateral for the entertainment industry and had evolved into a high-end folding carton manufacturer serving a wide range of industries.

Staying true to the platform and roll-up strategy, Pfingsten supported Oliver with the 2021 acquisition of Boutwell, Owens & Co, a Massachusetts folding carton and blister card printing company. More recently, in January 2022, Oliver added Professional Image, a folding carton manufacturer in Tulsa, Oklahoma.

Another sophomore in the PE-backed roll-up of the folding carton segment is GPA Global. With backing from Sweden-based private equity firm EQT Partners, GPA has taken a more international approach, acquiring folding carton plants in the UK, Ireland, Poland, and the US. Most recently, GPA uncharacteristically staked out a position in the commercial printing segment with the purchase of Southern California Graphics (see GPA Global Emerges as Packaging Consolidator – December 2021).

On the varsity level is Rohrer Corporation, having graduated from its first PE sponsorship as a portfolio company of Shoreview Industries when it was acquired by Wellspring Capital in 2021. Upon its exit from ownership of Rohrer, Shoreview announced that it had grown Rohrer from $67 million to over $200 million in revenue with four add-on acquisitions since its initial investment in the company in 2009. Leaving no doubt about its intention to owners and potential sellers of folding carton companies, Wellspring announced its goal to “become the consolidator of choice in the industry.” Making good on that promise, Wellspring has already supported the acquisition of Jay Packaging in Warwick, Rhode Island and Coburn Carton Solutions in Hayesville, Ohio.

The Big Leagues

Fueled by the public markets rather than private equity funds, Graphic Packaging and Westrock are large, vertically integrated producers of folding cartons. Both companies operate their own paperboard mills with much of their mill’s output consumed by their own operations. While not completely immune to being purchased by one of the massive global private equity funds in a take-private transaction, these public entities have been at the top end of the folding carton food chain, absorbing former PE-backed roll-ups that have reached sufficient critical mass.

If the activity of the past several years in the label printing segment is any indication, and to at least some extent we believe it is, owners of folding carton manufacturers in the lower middle end of the market will be on the receiving end of multiple calls from newly minted young MBAs working the phones and sending emails, seeking to introduce their employer, a private equity fund intent on rolling up another segment of our industry.
   
2022 March - 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
Contiweb
(Port co. H2 Equity Partners)
No Data Boxmeer,
Netherlands
WS Print No Data Schnaittach,
Germany
3/31/22 No Data Acquisition Pressroom chemicals Link
Jordan Company No Data New York, NY Five Star Holding No Data Houston, TX 3/30/22 $1,500 Acquisition Flexible packaging & films Link
Schweitzer-Mauduit International $1,440 Alpharetta, GA Neenah $1,030 Alpharetta, GA 3/28/22 $1,000 Merger Specialty papers Link
All American Label & Packaging
(Port co. Heartwood Partners)
No Data Dublin, CA Western Shield Label & Packaging No Data Rancho Dominguez, CA 3/28/22 No Data Merger Label printing Link
Gold Sachs Asset Management No Data New York, NY TemperPack Technologies No Data Richmond, VA 3/22/22 No Data Equity Financing Thermal packaging Link
Lewisburg Printing Company
(Port co. Radial Equity Partners)
No Data Lewisburg, TN Huston Patterson No Data Decatur, IL 3/22/22 No Data Acquisition Folding cartons & retail display Link
Cold Chain Technologies
(Port co. Aurora Capital Partners)
No Data Franklin, MA Packaging Technology Group No Data Fall River, MA 3/21/22 No Data Acquisition Thermal packaging Link
Imperial Dade No Data Jersey City, NJ Veritiv Canada
(Sub. Veritiv Corporation)
$6,850 Atlanta, GA 3/18/22 No Data Acquisition Paper distribution Link
Tension Corporation No Data Kansas City, MO Intellus Print Division No Data Montgomeryville,
PA
3/16/22 No Data Acquisition Envelope manufacturing Link
Hybrid Software Group No Data Cambridge, UK iC3d
Creative Edge Software
No Data Minneapolis, MN 3/15/22 $4.0 Acquisition Packaging mockup software Link
DazPak Flexible Packaging
(Port co. H.I.G. Capital)
No Data Commerce, CA TechFlex Packaging No Data Gardena, CA 3/9/22 No Data Acquisition Flexible packaging Link
Joann $2,420 Hudson, OH WeaveUp No Data Durham, NC 3/8/22 No Data Acquisition Digital fabric printing Link
C-P Flexible Packaging
(Port co. First Atlantic Capital)
No Data York, PA Bass Flexible Packaging No Data Lakeville, MN 3/4/22 No Data Acquisition Flexible packaging & bags Link
Xaar $66.5 Cambridge, UK Megnajet No Data Northamptonshire, UK 3/3/22 No Data Acquisition Ink systems Link


2022 March - 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:
Art & Antiques Worldwide Media, LLC 3/18/22 No Data 22-00598 Wilmington, NC 4th Eastern NC
Raleigh
David M. Warren George M. Oliver Specialty publishing
Chapter 7 Filings:
No Chapter 7 Filings Found this Month --- --- --- --- --- --- --- --- ---


2022 March - 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
Little Raymond's Print Shop 3/21/22 No Data Indianapolis, IN  Little Raymond's Print Shop Coppell, TX 3/21/22 Screen printing, apparel & promo items Link
19 Titles
Gannett Weekly Newspapers
May-22 No Data Eastern MA Gannett McLean, VA 3/17/22 Community papers ceasing print editions Link
Stephenson Printing 4/28/22 No Data Alexandria, VA None N/A Mar-22 Commercial printing Link
United Bindery Service 5/2/22 No Data Chicago, IL None N/A Mar-22 Commercial print bindery Link
Diecrafters 5/5/22 No Data Cicero, IL None N/A Mar-22 Commercial print diecutting & finishing Link
Mylan Technologies - Printing facility 5/5/22 No Data Swanton, VT Pfizer New York, NY Mar-22 In-Plant print shop Link