Commentary & Analysis
Why are These Millennial-Generation Printers Smiling? – October 2014 M&A Activity
October 2014 –Mergers, Acquisitions & Restructuring in the Printing, Packaging & Related Industries
By Mark R. Hahn
Published: November 11, 2014
Vistaprint recently came calling on Printi, a two-year-old Brazilian startup. The company was founded by a pair of young (and now apparently very happy) entrepreneurs who met while working together as interns at Goldman Sachs. The millennial-generation buddies realized that Brazil was wide open to introduce automated web-to-print aggregation technology. They borrowed ideas from the more developed market in Europe, and modeled their company essentially as a Vistaprint look-alike.
It turns out that the two partners’ laser-like focus on developing the front-end technology was a great move. The company built out the ordering and customer service systems, outsourcing the actual print production. That strategy has resulted in a tremendous return on the founders’ initial $50,000 investment: Vistaprint’s investment of $25 million for a minority share of Printi imputes a value for the whole company in excess of $50 million.
With the front-end software and customer support system in place, the company will use the majority of the capital infusion to build their own “Vista-style” automated factory. A portion will be used to buy out the first round venture capital investors, who reportedly tripled their investments in two years.
The founders report that company has been operating at “more or less break even” so we unable to infer a multiple of EBITDA. However, looked at in terms of annual sales, which was disclosed, the price paid equates to a value of more than 16 times last year’s revenue of $3 million. If the company meets its goal of $10 million sales in 2014, the multiple paid on the projected sales is still an extremely respectable 5 times revenue. For the printing industry, these are extraordinary numbers – clearly this company is being valued for its potential growth and as an advanced marketing technology play that just happens to have printed products as the output.
This is not the first time this year that Vistaprint has pulled out its checkbook and paid dearly for the opportunity to acquire customers in new global markets. This past April, Vistaprint acquired Italian Pixartprinting which, similar to Printi, had developed and deployed a proprietary online customer-facing automated ordering platform. In that transaction, the seller had an impressive EBITDA of 26.8% of revenue. Vistaprint paid 2.6 times revenue, 9.8 times trailing EBITDA. (For more about that transaction and multiples in the printing industry, see The Target Report - April, 2014).
Packaging & Labels
We have noted in the past that while private equity investors in general eschew the general commercial printing industry, many private investment firms remain very interested in the packaging segment. Connecticut-based Saugatuck Capital joined up with mezzanine lender Ironwood Capital to provide the capital for a generational transition at Pharmaceutic Litho & Label, a specialty printer in Simi Valley, California that produces labels for pharmaceutical and medical device companies.
Arbor Investments, which has appeared on our deal log three times on the buy-side over the past three years, exited two of its companies, selling Midland Container and Great Lakes Packaging, both located in Wisconsin. The buyer was privately held Green Bay Packaging of Green Bay, Wisconsin. Both of the acquired companies produce corrugated products, including boxes and displays for retail. (For a discussion of activity in the packaging segment, see The Target Report - March, 2014).
Commercial Printing, Mailing & Fulfillment
In a rare event for Warren Buffet’s Berkshire Hathaway, the conglomerate sold off one of its subsidiary companies. World Marketing, which was part of the BH Media Group, was sold to an investment group headed by Robert Kraft. While BH Media has acquired a broad portfolio of local and community newspapers, it decided to exit this direct mail provider which mails more than 1 billion pieces annually.
The Mittera Group, based in Iowa, acquired commercial printer J.B. Kenehan in Wisconsin. This deal launches this printer into the $100 Mil+ plus club, now with a reported $135 million in projected revenues. (See The Target Report - September, 2014 for our commentary about the return of roll-ups to the commercial printing segment). This is the fifth time that the Mittera Group (and/or its subsidiary ColorFx) has appeared on our deal log in the past three years.
DG3, a diversified provider of global print and document services headquartered in Jersey City, New Jersey, stayed close to home, acquiring Marange Printing and MPI Mailing Services, also based in New Jersey. Two other New Jersey companies, Omega Specialty Products and Print Art, both based in Egg Harbor, announced that they have merged.
Transcontinental, the Canadian powerhouse printer and publisher, announced that it will be closing two printing facilities, in Edmonton, Alberta and Concord, Ontario.
Publications & Newspapers
Local and community newspaper are the bright spot in an industry in which the major metro dailies are beleaguered by huge decreases in advertising revenue and declining readership. Tribune Publishing, only recently spun off by its parent, announced that it has acquired all of the suburban titles from its long-time Chicago rival, Sun-Times Media. As a sweetener to the deal, the Tribune locked up the printing contract for the daily paper retained by Sun-Times Media, the Chicago Sun-Times.
Town Square Publications, a subsidiary of Paddock Publications, which in turn is owned by the Daily Herald Media Group in Illinois, acquired Village Profile, a national publisher of specialty publications sponsored by chambers of commerce. Canadian newspaper publisher Postmedia acquired its rival Sun Media, bringing 175 newspapers and related websites into the fold.
In preparation for, and subject to closing of its pending sale to Verso Paper, NewPage Holdings agreed to sell two paper mills to Catalyst Paper Corporation. The divestiture is a move to satisfy anti-trust objections from the US Justice Department. In what appears to be a great bargain for Canada-based Catalyst, the mills were sold for a combined price of only $74 million, while NewPage retained the environmental and pension liabilities.
For its part in preparing for the merger with NewPage, Verso Paper announced that it will be closing its coated printing paper mill in Bucksport, Maine.