Industry veteran Roy Grossman, most recently CEO of printing firm Sandy Alexander, has resurfaced after a few short months of retirement. Yesterday, Grossman and long-time associate Chip Stine announced the formation of MSP LLC to make investments in printing-related companies with revenues of $5 million to $20 million. Target segments include digital printing companies with sophisticated VDP capabilities; specialty direct mail, TransPromo, packaging & label companies; and large format printers. WhatTheyThink spoke with Grossman to get more details.
WTT: Roy, congratulations on your new initiative, and it’s nice to see you back in action. What have you been up to since you left Sandy Alexander?
RG: In the four months that Chip and I have been on our own, we have concentrated on two things. First, we have raised money, basically through friends that share our vision that there is still a great deal of opportunity in specific segments of our industry. Secondly, Chip and I have traveled the country and visited numerous businesses focusing on those with revenues between $5 million and $20 million, which desire either partnerships or to be acquired. Working with Paul Reilly from Compass Capital has made the identification of these companies much easier.
WTT: What type of businesses are you looking for, specifically?
RG: In general, companies that are in the faster growing niches utilizing emerging technologies. For example, they might specialize in sophisticated variable data and direct mail, specialty packaging or labels, wide format or TransPromo. What these companies all have in common is that they are highly profitable. They are not getting by on 10% EBITDA; they are making anywhere from 15-30% EBITDA.
WTT: Looking at the industry at large, which I think everyone would agree is struggling, are you having a hard time finding companies that meet your requirements?
RG: What surprised Chip and me the most is just how many very successful businesses there are that have successfully transitioned from the commodity-based model of commercial print to a true marketing solutions provider. We had a predisposition to thinking that very few companies had been able to successfully do so. The fact is, there are a lot that have. But they tend to be smaller companies serving more localized markets and customers and not on the “national” radar scope. These businesses have exciting futures. The printed output is not the primary aspect of what they do. They are truly marketing services companies. You might wonder why, if they are doing so well, they would be interested in joining up with us. Typically, these companies have founders who were extremely skilled at starting and building the business. More often than not, the founders had worked for another firm before striking out on their own. They were very successful over a five- to ten-year period in creating a solid company, and now they are trying to figure out how to grow their platforms. We often hear the founder say, “We are at $14 million. We are making a lot of money, but how do we grow bigger?” I believe we can help them do that.
WTT: Are any of these companies you are exploring general commercial printers?
RG: No. We have not looked at any companies that are in the traditional commercial space. There are a few very successful commercial printers for which the future bodes well like Sandy Alexander, Lithographix in Southern California, Hennegan and Williamson, among others, that all have a great sales team, depth of management, and enlightened ownership. However, for the most part, the commercial segment will likely be severely challenged in the future. Consider the lack of capital investment in this segment—there is very little; I am betting it is at a historical low, and not just because of the economy.
WTT: What do you think is causing this?
RG: There are two fundamental impediments. First is the economy. As difficult as it is at this moment in time, it will recover in perhaps 12 to 24 months. But the second issue is here to stay. The change in the way advertising and promotion is transacted in this country, and how the use of media has evolved, has created a new dynamic. For those who are willing to adapt, as evidenced by the companies Chip and I have seen, there is unlimited opportunity. But for those who have not or are unable to, the message is clear: they need to make a change quickly. The competition is not the printer down the street. It is alternative media. Learning to navigate the new paradigm is the key to the future. The irony is that the Internet, which some might argue is our biggest competitor, is also our biggest enabler. It works both ways.
WTT: When do you think we will start seeing acquisitions?
RG: Hopefully, in the first quarter of ’09. We have raised enough money so that we can do some smaller deals now. Obviously, anything requiring outside financing is difficult at this time. But this is an opportune time to buy if you have the funds. So our first transactions will be relatively small, but that does not preclude very exciting possibilities. We are actively talking with companies in highly specialized, high growth areas. It could be TransPromo, it could be sophisticated VDP, or any number of other types of specialties. We are also currently looking at a very interesting software-related venture. There is a significant amount of exciting opportunity. It has been enlightening for Chip and me to view this aspect of the business, which we never had much exposure to. When you are running a company like Sandy, as wonderful as that is, it consumes every minute you have. When you can step back and look at other facets of the industry, you realize how much upside there is. We have met many wonderful entrepreneurs who have succeeded by thinking out of the box.
WTT: So do you see yourselves as sort of a New Age Consolidated Graphics?
RG: Hardly. Although if we can build a business with real value that Joe Davis would like to purchase at some point, that would be great, but our strategy is to build the bottom line, to be very good at what we do, but not necessarily big. If we make investments in the right types of businesses, and do our jobs well, the revenue will come. One of the best things about most of the emerging technologies is that on a relative basis, they tend to be far less capital intensive and not so “iron” dependent., More importantly, as opposed to the commercial space where you are constantly battling a strong wind in your face, in many of these others segments, the wind is at your back. After 30+ years on the commercial side, we are looking to have the wind propelling us forward.
WTT: So it sounds like you might be outsourcing a lot of print, rather than producing it yourself.
RG: That could likely be the case, There is nothing we would like more than to outsource print to our previous company, Sandy Alexander. But we don’t plan to be in the business of producing traditional commercial print. The printing capabilities we will have most likely will be in areas like TransPromo or digital and wide format.
WTT: What types of customers do you expect to serve?
RG: Not the Fortune 100. Think about all of the B2B opportunities serving the middle market. Dr. Joe Webb writes about this all the time. These companies are desperate for marketing help. If you can show a chain of restaurants or retailers how a specialized, highly personalized direct mail campaign can have a huge impact on their business, they will pay for it; and it is a much less price sensitive market. And if you want to be really creative, you can even try to be paid based upon results. You become a true solutions provider, and that is the model we hope to get to. When you have a huge positive impact on your customer’s business, you will have a loyal customer. The tools are there. It is just a question of learning to use them. Who wants to bid on a job from specs? It is increasingly difficult to generate healthy profits in that model.
WTT: If you could share a couple of key pieces of advice with your peers in the printing industry, what would they be?
RG: Chip and I believe that there is a huge amount of opportunity if you just look at your customers and try and figure out how to help them better communicate with their customers. If you think printing is a dying business, you are probably in the wrong space and you need to transition into a more opportunistic space. Secondly, in order to do the first, you gotta go back to school. You have to look at yourself as a student again. We all have to be re-educated. It is a daunting task, but what choice do we have? If you are going to stay in this business, the model has to adapt. But it can still be a very rewarding industry, and Chip and I are very proud to be a part of it.
WTT: Roy, we will be waiting to hear more as you begin to put these businesses together. Thanks for your time today.
For more information contact Paul Reilly at [email protected] or call 303-520-7803.