DG3, a significant player in the NYC metro, national and international market for commercial and financial printing, has entered another phase of its storied existence of acquisitions, going public, sale of the company, management buyout, return of the founder, sale to private equity and now a secondary sale to private equity and special situation fund Resilience Capital Partners.
This latest transaction for DG3 offers the opportunity to look back at the company’s history, provides relevant insight into today’s market and suggests possible prognostication for the future. As a professional involved in several hundred M&A transactions in the printing and related industries, I view the announcement that DG3 was sold to Resilience Capital Partners from a three-fold perspective.
For readers who don’t know DG3 (Diversified Global Graphics Group), the company is considered by many, including this author, to be a leading company with strong management, significant market presence, and a consistent M&A presence. It has ranked in the Printing Impressions Top 400 for many years, most recently listed as having $140 million annual revenues (self-reported).
Let’s not forget that DG3 traces its origins back to legendary entrepreneur Michael Cunningham, who pulled together a series of ground-breaking roll-ups in the 1990’s to transform his company from a small financial print broker to the multinational Cunningham Graphics International, with offices in New York City, London, Hong Kong, as well as a large manufacturing facility in New Jersey. At the dawn of the dotcom boom, the company joined in the party and went public on the NASDAQ.
In a move now considered to be perfect timing at the height of the market in June 2000, Cunningham shocked the printing industry by selling to payroll processing company ADP which also processed millions of public company annual reports and statements. In a series of transactions from 2004 to 2006, a management group bought the business back from ADP, one piece at a time. They re-tooled the company with various well-executed strategic initiatives that put the company to the forefront of technology, creative services, print production and distribution in specialized niches such as pharmaceuticals and investment banking. In 2007, Michael Cunningham (now Dr. Cunningham) pulled a “Steve Jobs” and returned to lead the transition of the company, changing the company name to DG3.
The next year DG3 received a major equity investment from a private equity firm, Arsenal Capital Partners. Under Arsenal’s ownership, the company has completed no less than six acquisitions and invested in the transformative high speed continuous feed inkjet printing technology.
The announced sale of all of the company’s equity interests to a private equity fund is relevant because it shows that size matters. Based on Resilience Capital Partners’ criteria that the fund seeks “special situations,” as well as the investment banker chosen to advise on the transaction, SSG Capital Partners, we can infer that DG3 was leveraged and needed to bring in fresh equity to rebalance the capital structure.
My experience shows that smaller and less robust entities than DG3 almost always are unable to attract new money from professional investors. Most often, smaller entities transition from private ownership via a sale of intangibles/book-of-business. If excessive debt is part of the equation, the transaction will involve a non-bankruptcy debt restructuring to properly unwind the assets and liabilities. The scale of DG3, and its impressive market presence and capabilities, was clearly sufficient to attract institutional investment and overcome impediments that might prevent a smaller company from surviving as a stand-along entity.
In recent years, other major firms, such Sandy Alexander, also based in New Jersey and with multiple offices nationally, have survived various financial challenges and successfully restructured to remain independent, competitive and poised for growth as the industry consolidates further. (Sandy Alexander announced a management buyout in July, 2013.) It’s encouraging to see these leading printing companies reinvent themselves, in some ways serving as a model for their smaller brethren. It’s my observation, based on The Target Report and my own personal experience, that the pace of plant closures and orderly liquidations has slowed. It may be illustrative that if the “big guys” can make it, so can the “little guys” as a level of stability returns to the market for commercial printing and related services.