Commentary & Analysis
December 2014 – Mergers, Acquisitions & Restructuring in the Printing, Packaging & Related Industries
The Darwinian process of growth, change, merger, and failure proceeded with full vigor during 2014. The 241 transactions announced during 2014 in the printing, packaging, and related industries in the US and Canada represent a 40% increase compared to the 172 transactions that we noted during all of 2013. The vibrancy of the market is consistent with the M&A activity noted across many industries over the past year
By Mark R. Hahn
Published: January 13, 2015
The Darwinian process of growth, change, merger, and failure proceeded with full vigor during 2014. The 241 transactions announced during 2014 in the printing, packaging, and related industries in the US and Canada represent a 40% increase compared to the 172 transactions that we noted during all of 2013. The vibrancy of the market is consistent with the M&A activity noted across many industries over the past year.
Bankruptcy filings fell once again in 2014, with 20% fewer filed than during 2013 (43 versus 54). The companies that did file bankruptcy were in general smaller and had less impact than in past years. Tellingly, in 2014 there were three months in which we could not find any Chapter 7 liquidations and four months without any filings for Chapter 11 reorganization. Similar to the trend in M&A transactions in 2014, the printing and related industries were in synch with overall reduction in bankruptcy filings.
However, the trend in reported non-bankruptcy closures was dramatically different; there were 46 reported plant and company non-bankruptcy closures in 2014, a 100% increase from 2013. Some companies simply closed up shop without going through the formal bankruptcy court process. Another significant factor driving the consolidation of operations is the increase in acquisitions and mergers and resultant need to rationalize excess capacity. Local newspapers shut down their own printing presses and outsourced print operations.
This month, we take a look back at transactional activity during all of ’14, drawing conclusions from current trends and offer our predictions for select segments of the printing, packaging, and related industries for 2015.
General Commercial Printing – Stabilizing and Consolidating
Acquisition activity in the commercial printing segment will continue to be brisk, with transactions once again outnumbering all other printing-related segments as the successful players take advantage of their strong balance sheets and borrowing power to acquire weaker undercapitalized companies. Commercial printers will also once again lead the pack in the number of bankruptcy filings, although many of these will be Chapter 7 filings of small companies that will simply be liquidated. The larger companies will announce more non-bankruptcy plant closures as they consolidate production and retire older less efficient equipment and facilities.
We will see a return of the “roll-up” strategy to the commercial printing industry, as regional players branch out to a national stage to fill the vacuum created when Consolidated Graphics took its final bow and sold out to RR Donnelley. One contender for lead roll-up actor is OneTouchPoint, which was traded between private equity sponsors, and is now backed by ICV Partners. Also to be watched is the Mittera Group, which has been on a roll as it acquired J.B. Kenehan this year, its fifth appearance on our deal log. (For more, see The Target Report – September, 2014)
Newspaper Publishing & Printing – Spinning Off, Consolidating & Outsourcing
Newspaper publishing and printing companies will change hands, consolidate and close more printing facilities as the newspaper business tries to redefine itself under the onslaught of online services which have usurped the advertising revenues that once supported the newspaper business. Reduced in size and page count, and often serving primarily as a coupon-delivery vehicle, all levels of the newspaper businesses have been spun-off, traded and consolidated. There is no end in sight to this activity as specialized channels eat away at the remaining revenue streams (e.g. Zillow in real estate advertising).
Nonetheless, some very smart and well-healed investors were active over the past year, apparently seeing value in newspaper assets and attracted to the allure of owning their own personal news platform. In April, billionaire Glen Taylor stepped up and acquired his struggling home-town paper, the Star Tribune, in Minneapolis. This follows the acquisition the prior year of the Boston Globe and The Washington Post, each acquired respectively by local billionaires John W. Henry and Jeff Bezos.
The spin-off of print assets from broadcasting assets was big news this year as Gannett, E.W. Scripps, and The Tribune Company all jettisoned their newspaper operations, following the lead set when Rupert Murdoch ejected News Corp from 21st Century Fox.
The consolidation of regional and community newspapers was in full swing in 2014, as illustrated by serial acquirer New Media Investment Group, with backing from investment management firm Fortress Investment Group. New Media continued its acquisition strategy and acquired 36 newspapers owned by the Halifax Media Group in November. Imagine the consternation of the folks working at the Telegram & Gazette that serves the mid-Massachusetts market, when they were told that the paper was being sold again, for the third time in less than 16 months. T&G was first acquired by The New York Times in 2000. The recent triple-whammy sale began in August, 2013 when the NY Times sold T&G along with The Boston Globe. The Globe’s new owner, Boston billionaire, John W. Henry, reportedly was not interested in keeping T&G, and quickly sold it off to Halifax, which itself also had purchased some titles from The NY Times back in 2011. New Media now owns and publishes over 450 community publications.
No less than ten newspaper printing facilities were shut down in 2014 as local newspapers found it too difficult to maintain and re-invest in their internal printing capabilities. With many newspapers reducing page counts and run lengths, the operators with newer efficient plants have the capacity to take over the printing and inserting functions for the closed facilities. The Gazette in Montreal, Ontario announced that it would outsource printing to TC Transcontinental, which itself announced the closure of two plants this past year.
Magazine Publishing & Printing – Re-Defining Digitally, Spinning Off & Consolidating
Magazine publishers will struggle with declining subscriptions and revenues for printed products and seek new ways to profitably distribute their content. Publishers will invest in and experiment with new models of continuously updated editions that are streamed to readers through multiple mobile channels to all sizes of devices. Titles will be bought, sold, and spun off as publishers hone in on their targeted audiences. Printers operating in this segment will consolidate as print volume decreases.
The urge to un-merge was also strong for companies with print-centric magazine publishing assets. Transcontinental sold off its consumer magazine group, the Forbes family exited the magazine business, and Condé Nast divested its B2B subsidiary, Fairchild Fashion Media. The signature spin-off of the year was the split of Time Warner, which spun off its printed magazine titles to the similarly named Time Inc. The new publishing company has the daunting task of navigating the transition to digital channels in a manner which will produce sufficient revenues to support the company without support from the Time Warner mother ship.
The TVA Group, a subsidiary of Quebecor Media, announced the acquisition of the Consumer Magazine Group from Transcontinental. As part of the deal, Transcontinental extended its contract for the printing of the titles. In its explanation of its rationale for shedding the editorial and ad sales functions of these predominately French language titles, Transcontinental noted that the company is focusing on the local advertising markets it serves through over 180 community newspapers it publishes throughout Canada.
Magazine publishers experienced a major disruption this year in its newsstand distribution channel, with the bankruptcy filing and closure of Source Interlink Distribution. Newsstands were empty for weeks as publishers scrambled to replace the shuttered services. The magazines are back; however the problem remains of how to economically distribute a decreasing number of printed magazines and compensate the distributor for the cost of managing unsold returned copies.
In a related development, the electronic distribution of journals and magazines continues to pick up market share and investor interest. In December, Next Issue Media announced a minority share had been sold to the investment firm KKR. The company offers unlimited “Netflix style” unlimited streaming and is a joint venture of the who’s who of major magazine publishers (Condé Nast, Hearst Magazines, Meredith, News Corp., Rogers Communications and Time Inc.). Earlier in the year, a KKR-affiliated fund, Accel-KKR, invested in HighWire Press. HighWire provides an open electronic platform for universities and other publishers of scholarly journals to develop and host their academic journals. There is no actual printing press at HighWire Press and the content managed on its platform is only delivered in digital form.
Brown Printing enjoyed a reputation as one of America’s finest printers capable of printing high-volume, very high-quality publications and catalogs. The company was acquired in April in a transaction that appeared to be a bargain price for the buyer, Quad/Graphics. In the high-end publication market dominated in the US by Quad/Graphics and RR Donnelley, Brown Printing’s projected revenue of $350 million was a too-distant third place in the race for survival in the hyper-competitive publication printing segment.
Paper Industry – Specialties are Targeted, Mills Close & Consolidate
The paper industry will settle down after an extremely active 2014. Manufacturers will continue to seek niche opportunities that utilize their expertise in transforming fibers into paper with specialty properties. Inefficient mills will be closed as the industry continues to adjust to declining demand, but at a slower pace than last year. Smaller distributors will cease to be competitive against the large national distributors. Less competition between paper mills and distributors as a result of recent mergers will mean stabilized and rising prices for paper.
In the paper industry, 2014 started with a big bang - the announcement that Verso Paper planned to acquire NewPage. Verso took all year to complete the acquisition, closing exactly one year plus one day later, in January 2015. Verso closed its Bucksport, Maine mill and sold two mills to Catalyst Paper to satisfy antitrust requirements. All told, including the Verso mill, seven paper mills were closed down in 2014. However, Expera Specialty Solutions recently purchased the Old Town Fuel & Fiber mill in a 363 sale in a Chapter 7 bankruptcy proceeding and plans to re-open the mill located in Old Town, Maine.
As the demand for general printing papers declines, paper companies have responded by acquiring companies that manufacture specialty papers. Neenah Paper acquired Crane Technical Materials, a division of Crane & Co that makes filtration papers in Pittsfield, Massachusetts. Glatfelter acquired a German manufacturer of highly technical papers used in electrical components and glassine papers for use in cosmetics, food and pharmaceutical products. In December, Dunn Papers, with backing from PE firm Wingate Partners, acquired five specialty mills from Clearwater Paper Corporation that manufacture glazed paper and other specialty paper grades.
The business of distributing paper is consolidating. Once the domain primarily of family-owned distribution companies, the smaller players are ripe targets for larger consolidators and vertical integration with the paper manufacturers. New York City based Gould Paper acquired family-owned Texas-based distributor Bosworth Paper. In a reversal of its vertical integration strategy, International Paper spun off its Xpedx distribution company, simultaneously merging it with competitor Unisource, now renamed Veritiv. (For more, see The Target Report – January, 2014.)
Packaging & Labels – Everybody Wants In
Acquisition activity for companies that print and manufacture packaging will remain hot in 2015 as economic growth drives demand for all types of packaging, ranging from simple corrugated cartons, to high-value cosmetic wrappers, and to pharmaceutical cartons and labels.
Strine Printing in York, Pennsylvania accomplished what many commercial printers aspire to, successfully transitioning to become a specialist in folding cartons and large retail displays, attracting the attention of and being acquired by Menasha Packaging.
Global powerhouse Multi Packaging Solutions, a portfolio company of Carlyle Group and Madison Dearborn Partners, acquired the North American and Asian print divisions of the AGI-Shorewood Group from Atlas Holdings. The seven acquired plants boost Multi Packaging Solutions’ global capability to more than 50 manufacturing plants in the US, Europe, and Asia.
Hilex Poly acquired a new name, Novolex, concurrently acquiring flexible packaging manufacturer Packaging Dynamics in Chicago, Illinois. With backing from Wind Point Partners since 2012, Hilex Poly acquired Duro Bag Manufacturing earlier in June, 2014, and the flexible packaging unit from the Clondalkin Group, headquartered in Amsterdam, in April, 2013.
Welch Packaging, headquartered in Elkhart, Indiana, got into the acquisition mode this year with two purchases of corrugated carton manufacturers. Private equity firm Arbor Investments was active in the corrugated segment, acquiring Trojan Litho in March, and exiting two portfolio companies, Midland Container and Great Lakes Packaging, sold to Green Bay Packaging in October.
Print Management Companies – Evolving, Absent & Waiting in the Wings
Conspicuously absent from transaction activity during all of 2014 were the large Print Management companies: Innerworkings, Williams Lea, and Novitex Enterprise Solutions (née Pitney Bowes Management Services). These companies grew tremendously during a time of significant excess capacity and technological transformation in the printing industry. Those dynamics left the door wide open for the “super brokers” to drive very hard bargains with printing companies that simply could not afford to lose the sales volume from major corporate accounts. However, as excess capacity gets soaked up, it becomes harder and harder for the Print Management companies to beat up on print suppliers and obtain the promised savings. In response to these changes, the Print Management firms are expanding their service offerings. One firm, WorkflowOne was acquired by and is now part of the Standard Register printing company, effectively exiting the print management competition. Will one of the remaining Print Management companies be acquired in the coming year? I won’t be surprised.