Commentary & Analysis
Turmoil in the Garden of Meredith - September 2015 M&A Activity
September 2015 –Mergers, Acquisitions & Restructuring in the Printing, Packaging & Related Industries
By Mark R. Hahn
Published: October 8, 2015
The once-lauded symbiotic relationship between print and broadcast media has wilted and seems destined for the compost heap. The last significant bastion of the print/broadcast synergistic strategy, Meredith Corporation, has agreed to be acquired by Media General. If all the media pundits opining about the deal are correct, Media General is after the 17 local TV stations that Meredith owns and will weed out the printed publications within short order.
The offer for Meredith is estimated at just over $3 billion including cash, stock in the new merged company, and assumption of existing debt. Based on Meredith’s trailing EBITDA of $315 million, Media General’s offer to buy Meredith equates to a 9.8x multiple, significantly higher than Media General’s own present market multiple of 8.3x, making this a dilutive transaction for Media General shareholders. An investment firm that owns a substantial interest in Media General dissected the offer further, splitting the target company’s value into its respective print and broadcast components. The analysis, made public in a letter from Starboard Value LP, states that although only 34% of Meredith’s revenue comes from the broadcast properties, approximately 55% of the EBITDA is attributed to broadcast. In their analysis, Starboard assumes that the highest value attributed to the printed publishing business is 7.0x, which yields an implied multiple of 11.9x for the broadcast portion. The disparity in value is even higher in Starboards’ alternate scenario in which the printed properties are assumed to be worth only 6.0 times EBITDA, yielding an implied multiple of 12.7x for the broadcasting business.
Believers in the enduring value of print will be disappointed by Starboard’s characterization of Meredith as having a “less desirable business mix” and that the proposed acquisition of Meredith “seems to be a step backwards in strategy for Media General” which had exited the “low-growth and low-margin” business of printed publications (see The Target Report – May 2012). (Of course, this ignores the considerable difference between the newspapers that Media General sold off and the stellar brands owned by Meredith, including their flagship title, Better Homes and Gardens.)
And here’s where it gets complicated – Media General has itself been the target of an unsolicited bid by Nexstar, a pure broadcasting company. As of the date of this writing, it’s unclear as to the outcome of these conflicting offers. Media General may be forced to sell itself to Nexstar, rather than be the acquirer. If that happens, it is déjà vu for Meredith, which only last year went to the deal altar and was spurned. In that aborted deal, its intended partner, Time Warner, walked away at the last minute and spun off its printed publications as a separate new entity (see The Target Report – June 2014). We’ll stay tuned to this ongoing story, but in any event it’s clear that the Meredith publications will soon be planting its printed publication roots in new ground.
As we projected at our presentation of the Economic Forecast at the Executive Outlook conference that opened Graph Expo 15 last month, transactions in the packaging segment continue at a steady pace. In our analysis of the overall packaging market we counted 33 transactions that were announced in the first seven months of 2015. Nine of these were acquisitions of companies that specialize in flexible packaging, and six were companies that print prime labels and are arguably technologically poised to also enter the market for flexible packaging.
Transcontinental, the large Canadian printing company that primarily prints publications, made its second move to enter the flexible packaging segment with its acquisition of Ultra Flex Packaging. Transcontinental paid $80 million in cash for the company which had revenues of $72 million, a reported 6.7 times EBITDA and 1.1 times revenues. If the sellers meet certain targets, they will realize additional compensation above the announced purchase price. (For more information about Transcontinental’s first foray into flexible packaging, also an acquisition of a US-based company, see The Target Report – March 2014.)
Inland, located in La Crosse, Wisconsin, made its first move out of the Midwest region with its acquisition of Monet Graphics, a label and specialized coupon printer located in Downington, Pennsylvania. The acquisition adds to Inland’s existing considerable presence in the label segment, including cut & stack labels, blow-mold and in-mold labels, shrink products, and pressure-sensitive labels.
In the corrugated segment, Atlantic Packaging Products, located in Ontario, purchased corrugated box manufacturer Skybox Packaging located in Mansfield, OH. The investment group behind the Crown Paper Group was back in acquisition mode, purchasing Montebello Container Corporation which has three facilities all located in Southern California. The acquired company produces corrugated sheets that other companies convert into finished products, as well as also manufacturing corrugated boxes in its own facilities. This is the second transaction for Crown, having made its first acquisitions earlier this year (see The Target Report – February 2015) including the purchase of Port Townsend Paper which operates a mill that produces the kraft paper used in Crown’s other companies and the foundation for its stated goal of building an integrated packaging company.
Also active in the paperboard and kraft paper production segment, Hood Container acquired KPAQ Industries, which operates a mill in St. Francisville, Louisiana. Hood purchased its first mill, located in Tennessee, from International Paper in 2012. In a move towards vertical integration, Hood acquired Stronghaven in 2014, an Atlanta-based designer and manufacture of packaging and retail displays made with corrugated materials.
Commercial and Direct Mail Printing
The transactional scene for commercial printing establishments remains oddly quiet as it has been for the past several months, contrary to the widely accepted notion that consolidation within this segment is very active and is driving down the number of commercial printing establishments. While we don’t disagree in the long run, and we expect that the pace of acquisitions in the commercial segment is likely to increase, it appears that many prospective sellers are sitting on the sidelines waiting.
Another way that capacity reduction will occur is through bankruptcies or when companies simply close up shop. All three affiliates of Milwaukee-based World Marketing filed Chapter 11 bankruptcy in September, and apparently ceased operations, leaving several customers in the lurch (including drivers in the State of Georgia who have not received license renewal notices). In what seems to be a prescient move, Warren Buffet’s BH Media exited the World Marketing business just last year in October, selling the company, which mails over one billion pieces annually, to an investment group headed by Bobby Kraft (see The Target Report – October 2014).
Kraft’s other company, First Edge Solutions, which offers multi-channel marketing communications, entered receivership in July, 2015. The plan was for World Marketing to purchase First Edge; that plan has been shelved due to the bankruptcy filing. World Marketing’s president and COO released a statement indicating that the bankruptcy filing is likely the end of the road for the company.