Commentary & Analysis
MSP Digital Marketing and TecDoc Digital Solutions: The Case History of an M&A Transaction Done Right
When four print industry veterans decided to form a national network of digital services for marketing communications, they knew they would need the help of an M&A expert. Realizing that the digital universe is huge, they understood that locating the right acquisition targets within it was a task they could entrust only to an advisor possessing "industry knowledge, financial acumen, and a great database." Read how MSP Digital Marketing, with the help of New Direction Partners, took a successful first toward building its network with the well-executed acquisition of TecDoc Digital Solutions.
By Patrick Henry
Published: February 12, 2010
It began, as entrepreneurial ventures often do, with a broad personal ambition that crystallized into a specific business objective. In this case, the ambition was common to four print veterans who could have rested on the well-earned laurels of past accomplishments—but who opted for another chance to leave their mark on the industry instead.
In forming MSP Digital Marketing, Roy Grossman, Jonathan Fogel, Charles (Chip) Stine, and Edward Epstein did not aim to replicate their previous roles as owners and senior executives of high-end offset lithographic printing companies. What they had in mind this time was to build a national network of affiliates providing digital marketing communication services—including printing—to customers demanding a rich and customizable media mix.
Their strategy would be growth by acquisition, and in their first such transaction, the principals turned to New Direction Partners (NDP) of Berwyn, PA, both for advice in selecting the candidate and for guidance in the negotiations that followed. The result was MSP’s successful addition of TecDoc Digital, a Hudson, MA, specialty printer that has become the cornerstone of the network that continues to take shape with the assistance of NDP.
From its headquarters in New Canaan, CT, MSP plans to invest in digital marketing communications and printing-related companies with revenues in excess of $5 million. Particular areas of interest for its future growth are one-to-one marketing, web-to-print solutions, e-commerce, web storefront applications, sophisticated variable-data printing, photo books, and custom publishing, as well as digital marketing and advertising services.
“One More Shot”
The emphasis on digital applications is key to MSP’s strategy. While serving in senior management positions at Sandy Alexander, a well-known lithographic printing firm in Clifton, NJ, Grossman, Fogel, and Stine recognized that the industry was changing and that if they wished to continue meaningfully in it, their roles would have to change as well. Epstein, a former principal of two printing companies that became part of Sandy Alexander, shared this conviction and brought the added perspective of his experience as a successful merchant banker.
“We decided that we had one more shot to do something exciting and entrepreneurial,” Grossman says, adding that the partners saw the print market’s shift from offset to digital production as the “open frontier” where their best shot could be taken.
Such was the vision of the quadrumvirate when they incorporated MSP Digital Partners in the fall of 2008. The “MSP” part of the name, by the way, harks back to Grossman’s and Stine’s student days at Bucknell University in Lewisburg, PA, where they lived over and tended a bar on Market Street. Grossman says the partners recognized that the Market Street name “had infinite possibilities,” one of which is that the initials would be taken to mean “marketing service provider” in keeping with the mission of the new business.
As the first building block in MSP’s envisioned network, the TecDoc acquisition clearly was a deal to be done right. Grossman says that when Paul V. Reilly of New Direction Partners recommended TecDoc as a potential candidate for acquisition, MSP’s principals quickly saw in TecDoc’s founding owners a vision and a business strategy congruent with theirs.
Pioneers in POD
Founded in 1972 as a conventional printer and typesetter, TecDoc was an early adopter of on-demand digital printing and eventually became part of a POD network. Today, in addition to digital printing, TecDoc also offers 1:1 and cross-media marketing communications services, data management, mailing and fulfillment, and web-based collateral management.
Grossman says that when they were approached by MSP, TecDoc owners David Trombino and Paul Marinelli also had reached a point in their careers where the choice seemed to be either finding a new challenge or exiting the business. Although the company was profitable, Grossman says, the two initially were reluctant to sell because of the general downturn and its depressing effect on business valuations.
MSP’s reaction? “We didn’t take no for an answer,” Grossman says. Instead, with guidance from NDP, MSP was able to put together what he calls “a very creative financing package” that transferred a significant share of TecDoc to MSP and eventually will roll up the remaining portion. The deal, announced last September, also leaves Trombino and Marinelli in charge of operations at TecDoc, as was the plan from the beginning.
The terms assured satisfaction all around. “TecDoc has a very developed and efficient delivery system for 1:1 digital print and complementary digital marketing capabilities including data modeling, e-mail and personalized websites,” says Trombino, the firm’s CEO. “Our need was building a top-rate marketing and sales engine to drive our revenue growth. Roy, Jon, Chip, and Ed bring us a strong track record of doing that, so it makes a good marriage of two strong skill sets.”
The success of the TecDoc acquisition as facilitated by NDP provides a template for future expansion. When Grossman, Fogel, Stine, and Epstein decided to form the MSP network in the first place, they knew they would need the help of an M&A expert. “The digital universe is huge,” says Grossman, adding that locating the right acquisition targets within it is a task to be entrusted only to an advisor that possesses “industry knowledge, financial acumen, and a great database.”
Keeping Perspective, Breaking “Cement”
Just as critical are the adviser’s skills in structuring and closing the deal. According to Grossman, relying on NDP in a transaction with as much riding on it as the TecDoc acquisition “brings an objectivity to your deliberations that you might not otherwise have. It helps you to keep a perspective.”
In the press of negotiations, says Fogel, moderation by the M&A advisor “takes the personalities out of it” and ensures that relationships will remain intact and cordial after the deal is finalized. ”It’s the quickest way to bridge a gap,” he says, whenever the parties “get their feet stuck in cement” over some seemingly intractable detail.
The TecDoc principals agree. “It is certainly important to have an experienced M&A professional in the mix during these discussions,” says Trombino. Marinelli, the firm’s CFO, adds, “If it had not been for Paul Reilly’s persistence, we probably would have pushed the deal off. But with his help, we ultimately reached a creative solution that enabled us to move forward. I can’t speak highly enough about the help provided by New Direction Partners.”
Now that the acquisition of TecDoc is complete, Fogel says, MSP is negotiating with two other New England firms that it wants to absorb into an anticipated network of installations in the Northeast. He says that the company is in the “final planning stage” of a digital printing start-up somewhere else in the Northeast, and that talks are under way with a pair of marketing agencies—one geared to production, the other to digital advertising services—in the New York City metropolitan area.
Still another facet is a strategic sales partnership with Tracer Imaging of White Plains, NY, a provider of lenticular and 3D printing services. Although discussions with other potential additions to the network are in progress, the MSP partners are determined not to take on too much too soon. As Fogel says, “If you don’t manage the process properly, it’s as harmful as doing the wrong deal.”
Where to Go from Here
Building upon this carefully planned base, says Grossman, MSP will strive to create “a nationally networked group of world-class digital solution providers” on a flexible model that can change as rapidly as technological developments and market shifts require. He says that although the partners share a print-centric background, “we are truly media-agnostic” and will offer print as one component of an integrated strategy.
Fogel adds that although MSP offers output services, it is not primarily a production source and does not target “the commoditized part of the business.” As strategic partners to marketing communication providers, agrees Grossman, “we’re really selling digital solutions” that can but don’t necessarily include ink and toner on paper. He adds, though, that MSP has several web-to-print customers and that as it grows, the network will operate on distribute-and-print basis with a common workflow at all of its installations.
Asked which of its services MSP will find in greatest demand, Fogel replies, “That depends—is it Monday or Tuesday?” Although he thinks that the pattern of demands will be hard to predict, he’s convinced that trends in the market for digital services are such that “every single project you approach will be custom in nature.” He says that MSP will approach these jobs first by determining their communication objectives, and then by providing the “highly customized, highly targeted, highly variable output” that’s needed to achieve them.
But the physical output isn’t ultimately what counts, according to Grossman, who declares, “To make money in the printing industry today, you have to in one way or another control and manage the content.” Because output providers typically don’t have strong hand in the content, Fogel agrees, “the digital print business has become almost as commoditized as the offset business.”
Grossman says that MSP will avoid commoditization by marketing its services to “verticals that are more or less recession-proof, with high growth prospects.” Such customers, explains Fogel, will come from the health, education, and financial services sectors, all of which generate large volumes of jobs that lend themselves to personalization. With the resources of TecDoc, for example, MSP can provide customized course packets and other variable materials commonly used by colleges and universities.
The Best Will Do Nicely
The challenges of building a national network of digital services in a recession are obvious, as is the fact that entities much larger than MSP have attempted the same thing with mixed results at best even in the best of times. Grossman, however, thinks that MSP will have better luck precisely because of its more compact scale.
“We don’t want to be the biggest,” he says, “but we do want to be the best. “We will be happy to get to $50 million in revenues with a well-run network.” He believes that because the company has a clear vision of its “critical mass optimum point,” it won’t make the mistake of taking on any “daunting task” it doesn’t have the critical mass to handle.
Nothing is more daunting to any printing business, fledgling or established, than the present state of the economy. Grossman foresees a slow recovery, but not to status quo ante. The industry, he says, “will never go back to what we call the way it was.”
But for print service providers willing to admit that things have changed, observes Fogel, the new, integrated media landscape holds opportunities. “It’s a far more segmented business, and it will continue be so,” he says. “Any single medium will be up against all of the others. They have to be interdependent.”
Grossman, a founding member of The Print Council, believes that interdependence will be a good thing for ink and toner on paper. “Print is still an extremely powerful medium when used in conjunction with others,” he says. It’s also a cornerstone of his faith in bright prospects for MSP.
Their outlook may have been different in the past, but as far as the partners are concerned now, Grossman says, “we don’t have an exit strategy.”
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