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Commentary & Analysis

Surviving “the Printing Industry’s Perfect Storm”—and Its Aftermath

A “perfect storm” of change has transformed the printing industry, and every traditional printing operation caught in it faces the same decision: either issue a Mayday and sell the boat, or do nothing and watch the ship sink.

By Thomas J. Williams
Published: April 9, 2012

The graphic communications industry has been under unprecedented pressure for the last decade, with the stage set during the 1990s as consolidators, fueled by easy money from an aggressive lending community, rolled up scores of commercial printing operations nationwide. Beginning in the early 2000s, many of these roll-ups came unglued as the synergies the consolidators pitched to lenders and the stockholders of the firms they acquired failed to materialize.

As many consolidators defaulted on the considerable debt they carried, these roll-ups began to fail as they were forced to file for bankruptcy protection and in many cases liquidation. As a result, many firms that took a bite of the consolidator’s apple often were shut down, liquidated or sold, or returned to former owners, many unable to survive in the long term. 

The stage was set and the first clouds were formed for what would become the printing industry’s perfect storm. At the same time alternative electronic media were beginning to compete with ink on paper, new digital printing systems based on toner and inkjet were competing with traditional offset processes. As these trends accelerated and a dramatic transformation of the printing industry became inevitable, the economy contracted significantly, and the perfect storm gained momentum.

Relentless Pressure on All Sides

Traditional printing operations saw revenues drop by as much as 30% as print purchases declined and key customers began to employ the services of the print management firms that continue to proliferate. Pricing pressure became an industry-wide problem due primarily to overcapacity and the belief that sales at any price would fix what was broken. Customer needs changed in a weak economy. Digital printing processes became attractive alternatives for the production of short-run, print-on-demand and direct mail products. Non-print media provided customers and their clients with alternative advertising options.

The explosive growth of smartphones, tablet computers, and e-readers now continues the transformation, clearly indicating that a “survival of the fittest” environment has been created. This challenges every traditional printing operation to think strategically and seek a clear path to navigate and survive the perfect storm: either issue a Mayday and sell the boat, or do nothing and watch the ship sink.

Significant numbers of firms have failed in recent years, and the trend will undeniably continue for the foreseeable future as declining sales, debt, poor management, and economic factors become insurmountable for some. Management in denial and those whose misplaced optimism prevents them from seeing the forest for the trees are clearly vulnerable and unlikely to be among the survivors.

One Way or the Other

This perfect storm has created an environment where every firm in the industry must make one simple decision, to be a buyer or a seller. Buyers are those who have embraced the “last man standing” mentality and have the vision, strategic plan, and the financial wherewithal to grow revenue and diversify the services they provide to their customer base. Generic growth is no longer an option. A clearly defined and professionally managed acquisition strategy is the clear answer.

Sellers are those whose businesses may have declined to the point where cash flow is inadequate to service debt or sustain the business as a going concern. Sellers may also be those who do not have the desire or the ability to fight the fight, or those who know that they will receive the highest value for the company’s assets the sooner they convert those assets to cash. For those carrying debt in excess of the value of the company’s assets, waiting for a turnaround is simply being in denial. The longer sellers forego developing, embracing, and implementing an exit strategy, the more complicated, expensive, and painful the exit will be.

With the assistance of competent, industry-experienced advisors, buyers can develop and implement effective and successful strategies to build sustainable operations. This can be done either through the acquisition of bricks and mortar, or simply through the purchase of sales and other selected assets from the seller in a transaction known as a “tuck-in.”

Sellers, on the other hand, are able to implement an appropriate exit strategy and realize maximum value for the assets of an organization that, in many cases, has been built over generations. For these firms, a well-planned exit strategy is the safest harbor in a perfect storm that will rage for a long time before it finally blows itself out.

 

Thomas J. Williams is a founding partner of New Direction Partners, providing advisory services in investment banking, valuation, financial advisory, and management consulting.  

 

Discussion

By Gina Danner on Apr 09, 2012

So you are a buyer or a seller... why not go big or go home... how about evolve or die...

Oh here is another one... If you aren't moving forward you are moving backward.

The reality is that whatever the business you need a defined strategy and organic growth with old technology does not suffice.

The author presents a limited view -- buy or sell. I agree if you don't know what else to do this is one strategy to follow. It is not the only strategy.

My daddy had a saying... "By God Gina do something - even if it is wrong but do something."

I picked up another one along the way... Sales solves all problems.

Too many owners have lost focus that they need to focus on sales and growth. Cutting costs only slows the bleed. If you want to heal the wound the only way is to sell yourself out of it.

If someone isn't buying what you are selling then you need to figure out what they are buying and find a way to sell it to them.

 

By James Olsen on Apr 09, 2012

I disagree. You don't have to sell or buy companies to survive in today's printing industry. Tom Williams apparently hasn't heard about the very successful strategy of morphing a traditional printing company into a "marketing services provider" (I like the term "marketing support bette").

In a nutshell, a printing company positons itself with the right mix of digital presses, software and people who sell solutions - not print - to the same customers. Not only is this a way to simply survive, it's a way to thrive which is an objective not mentioned in Mr. Williams' column.

 

By Gloria Quintanilla on Apr 09, 2012

Interesting article, I wish the tone wasn't so pessimistic though. Yes, the printing industry has been suffering some major setbacks in the past years but there are still options for printers out there. Integrating with cloud printing providers like Peecho can help to gain an extra sales channel and gain more ground in the changing publishing market, for example. If anyone wants to learn more about peecho integration for printing facilities, here's a handy link: http://www.peecho.com/blog/integrating-with-peecho-a-howto-guide-for-printers.html

 

By Chuck Gehman on Apr 09, 2012

The basic theme of this article is, "Your business is in trouble, and I'm the only one who can help you by positioning you to sell or buy someone else."

Over the years the printing industry has experienced many internal and external structural and technological changes, and it has continued to evolve. Will there be fewer printers next year? Yes. Will there be printers behaving very differently than today? Yes. But I agree with Gina-- it's all about what YOU do about it, not what someone else tells you to do.

The problem with industry consultants is they get hung up on the macro data, and that does tend to paint a negative picture. But it hardly represents what's going on between you and your customers. Are you a statistic or a business?

I believe companies need to take an objective look at their business' strengths and weaknesses, and how well they are positioned to viably continue and to grow.

Although the industry is shrinking, it is still massive and global, and there are plenty of opportunities for companies who serve customer in unique and valuable ways.

And let's stop chanting the bullshit "marketing service provider" mantra. It is a wrong name, and as a concept is far from the only way a printing company can succeed today.

 

By Gary Ampulski on Apr 09, 2012

Having worked with a number of financial buyers over the last eight years and in Corporate Operations and M&A for some 20 years before, I believe Mr. Williams has a good point.

True, there are some CEOs who had the vision, pre-recession, to invest in emerging digital solutions like Web-to-Print portals and are expanding into other digital communications like email, mobile and social media. However, those that have done so and achieved any scale at all are few and far between. It is true that if you have the skills to develop interfaces with your customer's data, develop the applications, track the results and sell the solution to others, you might have a chance to be successful in growing your business. But that takes time, leadership and capital. None of those are commodities in today's competitive environment.

The dynamics of the market and consumer preferences are driving the technology to the point that print service providers have to become technology solutions providers and the skills to make that happen are a big leap from what exits in many companies today.

Perfect storm? You bet. All brought on by consumer preferences for electronic media, lower output volumes driven by customer data that focuses on relevancy, and cross channel customer communication programs that demand accountability through cost savings and return on program investment. If you can deliver that, you'll not only survive but thrive.

 

By David Siegfried on Apr 09, 2012

I think Tom is exactly right. There is, obviously, a continuing trend to a smaller overall industry. It will shrink much more because the customer of the printing company has become more independent of the process since they have been able to produce more and more of the product themselves. Only the most effective companies will be able to prosper as printers in the foreseeable future but there is no doubt that the our industry will continue to shrink and squeeze out inefficiency as has been going on now for more than the 40 years I spent in the industry.

If you really need proof look at the number of businesses (Suppliers, paper mills, printers, banks, leasing companies ink companies, etc) that once supported a thriving industry and have now disappeared from the landscape.

So take his advice and start planning for your future as either a buyer or a seller.

Dave Siegfried

 

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