Friday, August 7, 2020

Buyers are On The Move and On Track – July 2020 M&A Activity


Serial buyers are back in the market for print-centric company assets, each executing on their own unique and established long-term strategic direction. While some of the transactions in July appear or are clearly opportunistic, these companies are not veering wildly off course from their pre-Covid-19 track.

CJK Group, a Minnesota-based company consolidating companies in the book manufacturing industry, acquired the equipment and customers of Quad’s mammoth book printing and binding facility in Versailles, Kentucky. The 1,000,000 square-foot facility produces softcover and hardcover books, as well as publications. CJK is rebranding the plant as Sheridan Kentucky, a division of the Sheridan companies that CJK acquired in 2017 from private equity firm Jefferies Capital Partners (see The Target Report: Legacy Printing Companies Fade Into History – April 2017).

The sale of the Kentucky plant represents a major step forward for Quad in its journey to exit the book manufacturing business, an element of its “3.0 Transformation strategy.” The roadmap calls for Quad, organically and through M&A strategies, to change itself into a marketing solutions partner, presumably bridging the gap between the big creative advertising agencies and companies that just print (see The Target Report: Turning a Big Ship – Quad/Graphics Acquires Ivie - February 2018). According to the company’s website, Quad is well on its way; non-print “integrated solutions” accounted for 21% of 2019 net sales. Apparently, customers that buy books do not utilize the other elements of Quad’s total suite of offerings and therefore book manufacturing does not fit the company’s long-term strategic vision. In addition to the sale of the Kentucky plant to CJK, Quad has announced that its West Virginia and Pennsylvania book manufacturing operations are also for sale.

Quad’s major competitor, LSC Communications, was following a similar strategy, bolting on marketing automation and technology offerings onto its core business of printing magazines, catalogs and books (see The TargetReport: If you Can’t Beat ’em, Join ’em - July 2018). However, for LSC, the strategy missed the mark and the company eventually sought to sell itself and announced in October 2018 that it had accepted an offer from Quad. When that deal failed to pass muster with the US Department of Justice (the industry is still scratching their head over that decision), LSC had no choice but to file for Chapter 11 bankruptcy this past April. In the meantime, LSC began shutting down its magazine and catalog printing plants, closing three in January and one more in April this year.

All of which brings us back to the CJK Group, a company that has focused primarily on acquiring print assets in book production and knows when to move forward on its strategy . CJK has in a few short years grown by acquisition into a major book manufacturing company (see The Target Report: CJK Group Opens Next Chapter with Loan-to-Own Strategy – March 2019). Meanwhile, CJK’s main competition in books is adrift or pulling out. While Quad exits book manufacturing, LSC has the challenge of too much debt and may be broken into pieces in the pending sale process under the supervision of the US Bankruptcy Court. It appears that the contest for supremacy in book manufacturing will be between LSC Communications’ book division (however it emerges from bankruptcy) and the CJK Group which continues straight ahead on its track to become a major US book manufacturer.

Commercial Printing and Diversified Services

Mittera Group has announced the acquisition of certain assets of Minneapolis-based Ambassador Press. The acquired business brings customers and expertise to Mittera in point-of-purchase and retail display services. Ambassador utilized wide format digital printers as well as large format offset presses. The production services of Ambassador will be tucked-in to Mittera’s Chicago and Iowa locations. Presumably some of the work will end up in the former location of Fuse, a failed mini roll-up of three commercial printing companies that was acquired by Mittera in November 2019.

Mittera is arguably the only company actively rolling up commercial printing companies on a national basis and is great example of a serial acquirer with a clear strategic vision, closing transactions on an almost clock-like schedule. Beginning from its origins as the Iowa-based, family-owned Rock Communications, its first acquisition was the purchase of ColorFX in 2007, followed up by acquisitions of some of the industries’ leading companies (see The Target Report: Consolidation in Commercial Printing Rolls On - December 2018). If past is prologue, we won’t be surprised to see Mittera stay on track with its clearly defined and disciplined roll-up strategy regardless of, and possibly accelerated by, the current downward economic cycle.

Marketing Execution (Print Management)

Innerworkings is being acquired by HH Global. Both companies have for years successfully inserted themselves as intermediaries between many printing companies and their biggest (formerly) loyal corporate customers. By combining the purchasing power of many large clients, and taking advantage of overcapacity in the printing industry, these print management companies have driven many printers to accept unsustainable price reductions. Inevitably, some printing companies chase the volume offered by the print management company with the predictable result that a printer’s “key account” either becomes a loser or goes elsewhere. The impact on many family-run printing companies has been devastating.

Despite growing to over a billion dollars in annual revenue since 2014, Innerworkings has not reported a profit since 2017, EBITDA was a dismal 3.3.% in 2019, and the company has struggled with accounting irregularities, delayed SEC filings and restatement of previously filed financial statements. HH Global has offered $3.00 per share for the company, above the recent market price, but significantly less than Innerworkings’ high over time and approximately half the value as recently as December 2019. In effect, HH Global is acquiring a $1.1 billion book of business for $177 million and assuming Innerworkings’ leading position in the North American market for marketing execution and print management services.

From the perspective of the commercial printing company owner, HH Global will not likely be any more welcome than Innerworkings when the call comes that the printer’s best customer has engaged HH Global as their print management company. The printer soon learns that the customer’s print buyer has been “rebadged” (i.e. the buyer now works for the print management company instead of the customer) and is now charged with an unreasonably aggressive goal to drive costs out of the print supply chain. I suspect that not many tears will be shed in the printing community for the demise of Innerworkings.

Newspaper Publishing

Chatham Asset Management, a New Jersey-based hedge fund, has acquired McClatchy, the publisher of over 30 newspapers, including major metro papers The Sacramento Bee (the original McClatchy paper, dating back to 1857), The Kansas City Star and the Miami Herald, among others. McClatchy filed for bankruptcy in February, struggling to survive the downturn in advertising revenues, unable to meet pension obligations, and burdened with a massive debt hangover from its ill-timed $4.5 billion purchase in 2006 of its bigger competitor Knight Ridder. Chatham emerged as the victor in the company’s 363 sale in bankruptcy, using its position as McClatchy’ secured biggest creditor to credit bid $263 million of its debt plus $49 million in new money.

Chatham is no stranger to the suffering newspaper industry. In 2016, Chatham acquired two-thirds ownership of Postmedia, Canada’s largest newspaper chain, in an out-of-court loan-to-own strategy, trading debt for a majority ownership stake. Chatham also controls American Media, publisher of sensationalist tabloid titles including most famously the National Enquirer. Chatham joins Alden Global Capital and Fortress Investment Group as major players in the transition of US newspapers to ownership by financial institutions. The McClatchy family, no longer involved, ran the papers in the tradition of civically-minded family stewardship and journalistic excellence that dates back to the 1800’s.

Update: The Impact of Covid-19

The impact of the virus on M&A activity has not been as dramatic as might be expected, at least not yet. Bankruptcies in the industry are few, while plant closures continue at a steady, but not greatly accelerated, pace. Unfortunately, we expect that will change as the PPP loans are exhausted and print volumes stay depressed. For some companies, especially those that operate in the undifferentiated commercial print segment, the recovery cannot come soon enough.

We found no new Chapter 11 bankruptcy filings in the printing, packaging and related industries and only two Chapter 7 liquidations, one a small screen printing company in New Mexico and the other an involuntary bankruptcy involving the Ebony and Jet publishing brands. This is the second time these brands are in Bankruptcy Court, having been sold to private equity investors in the original Chapter 7 bankruptcy of Johnson Publishing, filed in April of 2019.

Ebony, founded in 1945 by John Johnson, and a beacon of black entrepreneurship in America and at one time a prominent Chicago business with an iconic headquarters building on Michigan Avenue, ceased publication of its print editions with its Spring 2019 issue. The website went offline this March. Ebony’s sister publication, Jet, the pocket-sized weekly magazine, ceased print publication back in 2014. Ebony and Jet at one time were highly influential in changing cultural attitudes in the US. In a different time and place, the instant sharing of video via social media did not exist, and print held center stage to bring news to the public’s attention. Jet famously published the photo of 14-year-old Emmett Till lying in his casket with his mother looking on after he was killed in 1955 in Mississippi. The photo was the 1950’s equivalent of the George Floyd video and was the spark that lit up the civil rights movement. That photo, along with the magazine’s entire archive, was sold to a group of philanthropic organizations in the first bankruptcy proceedings and is not included in this latest spat over the remains of Ebony and Jet.

Non-bankruptcy closures continued apace. The assets of direct mail company Pacific Marketing in Milwaukie, Oregon are being auctioned off due to a complete plant closure, as are the assets of Rickard Bindery in Chicago, and the screen printing equipment of retail display printing company Mark-It Graphics in Osceola, Wisconsin.

RR Donnelley announced the closing of The Hennegan Company printing plant, one of the formerly independent printing companies that RRD acquired when it bought Consolidated Graphics (CGX) in 2014. Located in the greater Cincinnati area, Hennegan was a plum acquisition for CGX which was rolling up the commercial printing industry with over 70 acquisitions in a strategy that maintained the independence and separate local brand identity of the acquired companies. Many of those locations have now closed. The 210,000 square foot Hennegan sheetfed and web printing facility now joins others in the CGX graveyard.

At one time, Hennegan was considered the pinnacle of quality and service in the commercial printing world. I started my post-college career in 1980 in the industry selling high quality printing for Compton Press, a long-defunct family-owned printing company in Morristown, New Jersey. We prided ourselves on working hard to produce a high-quality product for accounts; mine included IBM, Merck, James River Paper and some very demanding graphic design firms. We faced tough competition, often up against the LP Thebault Company (parts of which are incorporated into the aforementioned Mittera) which was always seemingly a step ahead of Compton in customer’s minds. But when the most demanding and famous New York graphic design boutique firms wanted the best of the best, there was no competing with the reputation and craftsmanship of the renowned Cincinnati printer, The Hennegan Company.



2020 July - 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
Robustelli
(Div. Seiko Epson)
No Data Villa Guardia, Italy For.Tex
(Div. Seiko Epson)
No Data Fino Mornasco,
Italy
7/30/20 No Data Merger Fabric printers & inks Link
Mittera Group No Data Des Moines, IA Ambassador Press No Data Minneapolis, MN 7/24/20 No Data Asset Acquisition Retail display Link
Benpac Holding No Data Stans, Switzerland Gallus Group
(Sub. Heidelberg)
No Data St. Gallen,
Switzerland
7/22/20 $141.0 Acquisition Narrow web presses Link
Don Hurd
(Owner of Hometown Media)
No Data Fowler, IN Daily Clintonian No Data Clinton, IN 7/21/20 No Data Acquisition Community newspaper Link
HH Global Group $488.4 Leatherhead, England InnerWorkings $1,150 Chicago, IL 7/16/20 $177.0 Acquisition Print & brand management Link
Chatham Asset Management No Data Chatham, NJ The McClatchy Company
(30 news organizations)
$739.4 Sacramento, CA 7/13/20 $263.0 363 Sale in Ch. 11 Metro & regional newspapers Link
Avery
(Div. CCL Industries)
$5,290 Toronto, ON InTouch Label and Packaging $9.5 Lowell, MA 7/2/20 $10.9 Acquisition Digital label printing Link
CJK Group No Data Brainerd, MN Book manufacturing plant
(Div. Quad/Graphics)
No Data Versailles, KY 7/1/20 No Data Acquisition Book manufacturing Link

2020 July - 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:
Ebony Media Holding, LLC 7/24/20 No Data 20-33667 Houston, TX 5th Southern TX
Houston
Jeffrey P. Norman Pro Se Magazine publishing
Quality Screen Print Corporation 7/6/20 No Data 20-11370 Albuquerque, NM 10th New Mexico
Albuquerque
David T. Thuma James A Askew Screen printing

2020 July - 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
The Hennegan Co.
(Div. RR Donnelley)
Jul-20 No Data Florence, KY RR Donnelley Chicago, IL 7/28/20 Commercial printing Link
Pacific Marketing 8/18/20 No Data Milwaukie, OR None N/A Jul-20 Direct mail printing Link
Mark-It Graphics 8/20/20 No Data Osceola, WI None N/A Jul-20 Wide format & screen printing; retail display Link
Rickard Bindery 9/10/20 No Data Chicago, IL None N/A Jul-20 Bindery services Link

Tuesday, July 7, 2020

Donuts Lead the Way in Return to Normalcy – June 2020 M&A Activity


Buyers of packaging companies, both privately-owned and PE-backed, closed on deals in June, a clear demonstration of their confidence in the long-term economic recovery. However, confidence is not yet evident across the packaging board; a deeper look reveals a common thread among these early out-of-the-gate acquisitions. Despite the deep recession, everything that gets consumed still needs to be labeled, boxed, bagged, bottled, or pouched. As we transitioned to a nation of homebodies and online shoppers, what we are consuming is food; baked, processed, canned, dried, frozen, and all forms of packaged food. Bottled drink sales are up and consumption of in-home alcoholic beverages (and cannabis products where legal) have zoomed upward as we sit home and Zoom each other. Not surprisingly, sales of snack foods, in all forms, are especially booming.

Southern Champion Tray (SCT), a family-owned company headquartered in Chattanooga, Tennessee, acquired Honeymoon Paper Products. The acquired company manufactures corrugated circles and pads (aka “cake boards”) used in the take-out departments of bakeries and delis. SCT has announced that it plans to retain the workforce at Honeymoon and continue to operate the plant in Fairfield, Ohio. With over 650 employees, SCT produces over 500 stock products, as well as custom solutions, for customers primarily in the foodservice and bakery industries using offset litho, flexographic and digital printing technologies. The company’s products, while not glamorous, are ubiquitous and familiar; the white cake box tied with string at the local bakery, the printed tray used to serve fried chicken bits, the open-top French fry envelope, and the donut box with the glassine see-through top.

Welch Packaging is once again executing on its consistent and highly focused growth-by-acquisition strategy (see The Target Report: Catching the Wave in Corrugated Cartons, February 2020), with the acquisition of Excel Display and Packaging in Aurora, Illinois. True to Welch’s M&A history, the acquired company produces corrugated products, including food packaging. This is the third acquisition this year for Welch, and the second deal that is a carve-out of a company previously owned by pulp and paper manufacturer, the much larger Georgia-Pacific.

C-P Flexible Packaging, with private equity backing by First Atlantic Capital, acquired Genpak Flexible. The acquired company is headquartered in Aurora, Ontario, with an additional production facility in Lakeville, Minnesota. Consistent with the noted trend, Genpak’s business is primarily packaging for food, including manufacturing specialty multi-layer coffee bags, pet food pouches and bags, candy bar stick packs, and printed rollstock for others to use in their own packaging lines. And Genpak’s core business? Snack food packaging, for products from potato chip and tortilla chips to salted nuts and confectionaries.



Brook & Whittle, the Connecticut-based label printing company now backed by its second private equity sponsor, Snow Phipps Group, has acquired Label Impressions, located in Orange, California. Label Impressions utilizes Flexo presses, up to 10 colors, along with rotary screen printing, to produce labels, stand-up, zippered and gusseted pouches, as well as single-serve sachets and stick packs. Market segments served include beverages, food, specialty secure packaging for cannabis products, and lawn & garden products (another up-market as people stay home and groom their yards). Clearly confident in the market for packaging, this is the second deal for Brook & Whittle in as many months. 

June was the first relatively active month for M&A deals since the Covid-19 induced shut-down began mid-March. The renewed transactional activity is a clear indication that packaging manufacturers expect demand for packaged products to continue apace or grow, and as a consequence, the appetite for their packaging expertise and capacity will tag right along and grow also. A perfect recipe for more deals in the future.

Update: The Impact of Covid-19

In our opinion, the June deals are a clear sign of a thaw in the market; deals that were frozen when the virus broke out are now closing. In addition to the transactions noted above, which were likely in process and closed only after a restart and sufficient due diligence, other acquisitions completed in June include Baldwin Technology’s purchase of Western Quartz Products, an established producer of UV lamps which are used to cure UV-cured inks, increasingly used in offset printing production. In another deal, also likely in process before the freeze-up, Sun Chemical absorbed Sensient Imaging Technologies, a supplier of digital printing inks used in the rapidly growing application of inkjet printing technology in packaging, commercial printing, book printing, direct mail and transactional print segments.

There has not been a significant uptick in bankruptcy filings, as might have been expected. We found only three, two Ch. 7 liquidations and one Ch 11 petition for relief. A small letterpress shop in the Boston area, Goosefish Press, filed for Ch. 7, as did United Printing Media & Graphics in Gaithersburg, Maryland.

FiberCorr Mills, located in Massillon, Ohio, filed a voluntary Ch.11 petition, presumably to restructure the company’s debt and emerge with a cleaned up balance sheet. The filing by FiberCorr Mills represents a rare bankruptcy filing in the corrugated segment. Manufacturers of kraft and corrugated products have benefitted over the past several years from the increased demand for corrugated cartons and packing materials needed to ship all those online orders. Apparently, FiberCorr Mills is the exception; the company blamed its insolvency on economic forces, including China’s increased demand which drove up their cost for raw materials. We suspect that the $8.5 million purchase of a new state-of-the-art corrugator which went into live production in June 2019 also had something to do with the bankruptcy filing.

Where we did see a significant increase in distressed activity was in non-bankruptcy closures across several other industry segments. Commercial printing trade company 4over announced the permanent shut down of its printing plant in Mississauga, Ontario, after announcing temporary layoffs in March due to reduced demand in the wake of the Covid-19 outbreak. The presses and bindery equipment of Starnet Printing, a commercial printing company in Mahwah, New Jersey are scheduled to be auctioned off in early August. Catalog printer Arandell will close its Walton, Kentucky plant, ceasing operations by the end of July.

TC Transcontinental closed two newspaper plants in Québec when TC’s customer decided to permanently stop publishing the weekly papers that kept the plants busy. Weekend editions have been moved to TC Transcontinental’s newer and more efficient newspaper printing facility in Montréal. (For more on TC Transcontinental’s transformation into a packaging powerhouse, see The Target Report: Getting Flexible In Your Middle Years, April 2018).

Verso Paper announced the indefinite cessation of operations at two paper mills that produced graphic printing grades, citing the unprecedented decline in demand due to the Covid-19 pandemic. The two mills, in Duluth, Minnesota and Wisconsin Rapids, Wisconsin, will together layoff approximately 1,000 employees.

However, lest we leave the reader with a message of gloom and doom, the picture is more complex. The return of healthy M&A deals, as noted in our June deal log below, as well as the number of inquiries we are receiving here at GAA from buyers seeking to acquire printing and packaging companies, indicates that buyers are restarting their deal engines, coming back into the market, and are ready to close deals.



2020 June - 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
Pocket Outdoor Media No Data Boulder, CO Health & fitness publications
(Div. Active Interest Media)
No Data El Segundo, CA 6/30/20 No Data Acquisition Magazine publisher Link
Southern Champion Tray No Data Chattanooga, TN Honeymoon Paper Products No Data Fairfield, OH 6/29/20 No Data Acquisition Bakery & deli packaging Link
Turbo Images No Data Saint-Georges, QC Lettrapub No Data Sainte-Marie, QC  6/29/20 No Data Acquisition Wide format fleet graphics Link
MetroVCS No Data Dallas, TX Sunbelt Letterpress No Data Dallas, TX 6/24/20 No Data Acquisition Letterpress & finishing Link
C-P Flexible Packaging
(Port co. First Atlantic Capital)
No Data York, PA Genpak Flexible
(Port co. Jim Pattison Group)
No Data Aurora, ON 6/19/20 No Data Acquisition
(Mesirow)
Labels & flexible packaging Link
Brook & Whittle
(Port co. Snow Phipps Group)
No Data North Branford, CT Label Impressions No Data Orange, CA 6/18/20 No Data Acquisition Labels & flexible packaging Link
TC Transcontinental $2,095 Montreal, QC Enviroplast No Data Anjou, QC 6/16/20 No Data Acquisition Plastic recycling Link
Baldwin Technology
(Port co. BW Forsyth Capital)
No Data St. Louis, MO Western Quartz Products No Data Paso Robles, CA 6/9/20 No Data Acquisition UV curing lamps Link
The Sourcing Group (TSG) No Data New York, NY BrandAlliance-US No Data Charlotte, NC  6/9/20 No Data Sale in foreclosure Promotional products Link
Welch Packaging Group No Data Elkhart, IN Excel Displays & Packaging
(Div. Georgia-Pacific)
No Data Aurora, IL 6/8/20 No Data Acquisition Retail display & packaging Link
PDF Communications No Data Signal Hill, CA Bestforms No Data Camarillo, CA 6/7/20 No Data Acquisition
(Corp Dev Assoc)
Label & forms printing Link
Sun Chemical
(Div. Dainippon Ink & Chemicals)
$7,000 Parsippany, NJ Sensient Imaging Technologies No Data Morges, Switzerland 6/2/20 No Data Acquisition Digital inks Link
Shamrock Capital No Data Los Angeles, CA Adweek
(Port co. Berginger Capital)
No Data New York, NY 6/2/20 No Data Acquisition Magazine publisher Link


2020 June - 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:
FiberCorr Mills 6/18/20 No Data 20-61029 Massillon, OH 6th Northern OH
Canton
Russ Kendig Anthony DiGirolamo Corrugated sheets & rolls
Chapter 7 Filings:
Goosefish Press, Inc. 6/3/20 No Data 20-11254 Hull, MA 1st Massachusetts
Boston
Frank J. Bailey AnDre' D. Summers Letterpress printing
United Printing Media & Graphics, LLC 6/1/20 No Data 20-15709 Gaithersburg, MD 4th Maryland
Greenbelt
Thomas J. Catliota Sari Karson Kurland  Commercial printing


2020 June - 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
4over - Printing plant Jun-20 $11.0 Mississauga, ON 4over Glendale, CA 6/17/20 Commercial trade printing Link
TC Transcontinental - Printing plant Jun-20 No Data Québec City, QC TC Transcontinental Montreal, QC 6/17/20 Newspaper printing Link
TC Transcontinental - Printing plant Jun-20 No Data Gatineau, QC TC Transcontinental Montreal, QC 6/17/20 Newspaper printing Link
Starnet Printing Aug-20 No Data Mahwah, NJ None N/A Jun-20 Commercial printing Link
Arandell - Printing plant 7/31/20 No Data Walton, KY Arandell Corp Menomonee Falls, WI Jun-20 Catalog printing Link
Loudon Machining
(manroland service organization)
Jun-20 No Data Effingham, IL manroland Goss Americas Durham, NH 6/10/20 Consolidation into NH location Link
Duluth paper mill Jun-20 No Data Duluth, MN Verso Paper Memphis, TN 6/9/20 Paper mill, graphic paper grades Link
Wisconsin Rapids, WI Jul-19 No Data Wisconsin Rapids, WI Verso Paper Memphis, TN 6/9/20 Paper mill, graphic paper grades Link