The Target Report: July 2014

Sunday, July 6, 2014

It’s about Time – June 2014 M&A Activity

The newest old company, Time Inc., was very busy in June. The venerable publisher of magazines, including household names such as Time, Fortune, People, and Sports Illustrated, was spun off from Time Warner, separating the aging print-centric parent from its progeny’s profitable entertainment and programming businesses. As its retirement gift, the new Time Inc. has been saddled with $1.3 billion of debt, as well as responsibility for a group of underperforming British magazines. With more than 90 titles in print, Time Inc. is challenged by the continuing and steady decline in magazine circulation which in turn has driven revenue down for 22 of the last 24 quarters.

Prompted by Time Inc.’s decision to cut off shipment of its magazines, magazine wholesaler Source Interlink Distribution filed Chapter 11 bankruptcy in June, announcing that the company will cease operations. Time Inc. apparently had good reason to withhold further shipments, reporting that it will be unable to collect $26 million due from Source Interlink. As Time Inc. switches to another distributor, it will likely lose sales and possibly readership loyalty as its newsstand slots sit empty for up to 12 weeks.

Time Inc. wasted no time in diversifying away from the legacy print business, announcing on June 2nd that it was acquiring Cozi. The Seattle-based company is a purely digital company that offers a mobile app and website that families use to coordinate shopping, schedules and to-do lists. No print involved.

Time Inc. wrapped up the month by divesting its Latin-American subsidiary, magazine publisher Grupo Expansión. Headquartered in Mexico City, with 16 titles in print, the company was purchased by Southern Cross Group, a private equity firm with investments throughout Central and South America.

In my recent article in NAPL’s new publication, Bottom Line, “M&A: Still a Buyer's Market?” I postulated that the market for commercial printing companies is improving and smart buyers with well-defined strategies are returning to the market, and that we may be at an inflection point between a buyer’s and seller’s market. Recent transactions suggest that acquirers of companies in the commercial printing segment may be less reliant on the “tuck-in” growth strategy, in which a healthy commercial printer picks up the sales of a distressed printer on a pure earnout basis, leaving the seller to close down operations and sell off the excess equipment.

In a transaction that appears more strategic than predatory, two commercial printing/mailing companies in the Seattle area with combined revenues in excess of $50 million, DCG West and CCS Printing, announced that they are joining forces, moving into a new 140,000 square-foot facility, and re-branding the new entity as DCG ONE. In another separate transaction in the Pacific Northwest region, Wright Business Graphics, based in Portland, Oregon acquired Sunset Press in Kent, Washington. Both companies sell only to the trade, and the combined operations reportedly will have $55 million in revenues.

Despite recent positive signs in the commercial printing segment, the “tuck-in” is not completely dead, and commercial printing companies continue to seek out opportunities to absorb the sales of smaller companies. Cedar Graphics in Hiawatha, Iowa tucked-in the sales of local competitor The Brandt Company which itself ceased operations. In a deal put together by my firm, the NAPL Business Advisory Group, J.S. McCarthy of Augusta, Maine, purchased the customer base and certain assets of Printech, a commercial printer located in Stamford, Connecticut.

German printing press manufacturer Heidelberg is not about to be outdone by its compatriot KBA’s foray last year into the market for manufacturing presses designed primarily to produce packaging. As reported in The Target Report deal log for December 2013, KBA purchased Italian press manufacturer Flexotecnica, which makes flexographic printing presses used for printing flexible packaging. KBA also announced at that same time its purchase of Kammann Maschinenbau, the German manufacturer of screen printing presses used to print directly onto glass containers. Heidelberg jumped into the flexo fray in June, announcing that it has acquired Gallus, the Swiss manufacturer of narrow-width flexographic presses. The battle for press supremacy, still ongoing and fought brilliantly by KBA in the offset press arena where Heidelberg once reigned supreme, moves to round two with flexographic presses.

Block Communications shuttered two downtown newspaper print operations. The company’s Pittsburgh Post-Gazette will be printed at a newly leased 245,000 square-foot facility outfitted with new printing equipment. Block’s Ohio paper, The Blade of Toledo, will be outsourced to a yet-to-be-announced more efficient plant that is within distance to meet the daily schedule, consistent with the trend occurring throughout the newspaper industry. Phoenix Media Communications in Boston announced the closure of newspaper and circular printer Mass Web Printing in Auburn, Massachusetts. The Seventh-day Adventist church is closing its Hagerstown, Maryland printing company, transferring the printing to its west coast printing operation in Nampa, Idaho.

The Free Lance-Star in Fredericksburg, Virginia, is back on our deal log, now exiting its Chapter 11 bankruptcy in a 363 asset sale to distressed debt fund Sandton Capital Partners. In addition to the paper and radio stations, the purchase included the Print Innovators division which prints the newspaper, circulars and commercial printing products.

2014 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
Releases

Cedar Graphics

No Data

Hiawatha, IA

The Brandt Co.

No Data

Davenport, IA

6/27/14

No Data

Tuck-in of sales

Commercial printing

2014 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
The Brandt Co.	Jun-14	No Data	Davenport, IA	None	N/A	6/27/14	Commercial printing	Link
Barton Nelson	Jun-14	No Data	Kansas City, MO	None	N/A	6/19/14	Specialty advertising pads and notes	Link
Mass Web Printing	7/3/14	No Data	Auburn, MA	Phoenix Media Communications	Boston, MA	6/24/14	Newspaper & circular printing	Link
Herald Publishing Association	TBD	No Data	Hagerstown, MD	Seventh-Day Adventist	Silver Spring, MD	6/24/14	Transferring print to Pacific Press Publishing	Link
Quad Graphics - Printing Facility	Dec-14	No Data	Woodstock, IL	Quad Graphics	Sussex, WI	6/16/14	Formerly Brown Printing facility	Link
Quad Graphics - Printing Facility	Aug-14	No Data	St. Cloud, MN	Quad Graphics	Sussex, WI	6/16/14	Formerly World Color facility	Link
Blade of Toledo	Aug-14	No Data	Pittsburgh, PA	Block Communications	Toledo, OH	6/3/14	Outsourcing print operations to TBD	Link
Pittsburgh Post-Gazette	Aug-14	No Data	Pittsburgh, PA	Block Communications	Toledo, OH	6/3/14	Transferring print operations to new plant	Link
Evolution Impressions	Jun-14	No Data	Rochester, NY	Evolution Events	Rochester, NY	6/2/14	Commercial printing	Link

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Sunday, July 6, 2014

It’s about Time – June 2014 M&A Activity

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