Editor's Note: Don't miss our exclusive coverage of this news in Cary Sherburne's interview with Cimpress CEO Robert Keane: "Cimpress Acquires National Pen: The Inside Scoop"
Acquisition expected to bolster Cimpress' mass customization capabilities in an important segment of the market for small business marketing products
VENLO, Netherlands - Cimpress N.V., the world leader in mass customization, announced today it has entered into a definitive agreement to acquire National Pen Co. LLC, the leading manufacturer and marketer of custom writing instruments for small and medium businesses. This acquisition supports Cimpress' strategy to build competitively differentiated supply chain capabilities that Cimpress makes available via its mass customization platform and brings to market with a portfolio of focused brands. National Pen will complement the successful organic investment Cimpress has already made in its technology and supply chain capabilities for promotional products, apparel and gifts (PPAG) offerings.
"Just like business cards, custom pens are a simple yet highly effective way for small business owners to market their companies," said Robert Keane, president and chief executive officer of Cimpress. "National Pen has tremendous mass customization and related supply chain capabilities with which they deliver an unrivaled breadth and depth of customizable writing instruments with low minimum order quantities that meet the low-volume needs of small businesses. We look forward to welcoming National Pen's team members and customers to Cimpress."
Traditionally, high minimum order quantities required small customers to pay for product volumes that they didn’t want. Conversely, Cimpress leverages the principles of mass customization to empower customers to purchase custom products in low volumes at an affordable price. Cimpress has made significant organic investments in recent years to reduce the minimum order quantity required for custom promotional products and business apparel. These have automated many of the graphic processing steps of the value chain so as to reduce per-order setup costs and developed intuitive and easy-to-use self-service browser-based design tools. National Pen has, in its distinct yet complementary efforts, developed strong capabilities in the production of large numbers of very small orders of custom writing instruments and other hard goods.
"National Pen is a clear leader in one of the key promotional product segments and has excellent manufacturing and supply chain capabilities which we do not have today," said Keane. "By combining the company's capabilities and expertise with those of Cimpress, we are confident we can help to grow both National Pen and the promotional products offering of our existing portfolio of brands."
Commenting further on National Pen's capabilities, Keane said, "We believe National Pen has meaningful scale-based sourcing and production advantages which drive great customer value. The company also has strong competencies in direct marketing, telesales and data analytics, which have contributed to the consistent growth of its revenue."
As part of Cimpress, National Pen will continue to go to market as it does today, through its primary sales channel which is a combination of direct mail and telesales. Additionally, Cimpress expects to support and further develop National Pen's emerging e-commerce presence and to introduce the National Pen product range into its Vistaprint and Upload and Print e-commerce brands.
Peter Kelly, National Pen's president and chief executive officer, said, "We believe our industry is at the beginning of a period of disruptive shift to e-commerce, and we are thrilled about the opportunities that joining Cimpress will create for our customers and team members. We expect our business to thrive as part of Cimpress, and we look forward to pursuing an exciting vision together to strive to eliminate the cost barriers that currently keep businesses from fully expressing their individual brands across a wide variety of personally relevant marketing materials and gifts."
Financial Terms of Agreement
Under the terms of the agreement, Cimpress will acquire 100 percent of the outstanding equity interests of National Pen for a purchase price of approximately $218 million (USD) subject to customary adjustments for net debt and working capital. Consideration at closing for the transaction will be in cash, using Cimpress' existing credit facility.
Based on Cimpress estimates made during due diligence, National Pen's revenue is expected to be approximately $275 million in calendar year 2016, reflecting year-over-year growth of approximately 10%.
Cimpress expects that its planned investment in National Pen will drive value creation that is consistent with the company's previously articulated M&A investment hurdle rate of 15% IRR. The company also expects upon closing this transaction that its leverage ratio as defined by its debt covenants may be above three times trailing twelve month EBITDA, but expects this to be temporary. As often stated, Cimpress is comfortable with a long-term leverage ratio of approximately three times or below, but would temporarily go above that level for a compelling opportunity, with a clear path to de-lever to three times or below.
During October and November 2016, Cimpress purchased 593,763 of its own shares for $50 million inclusive of transaction costs, an average price per share of $84.22.
Subject to satisfaction of various closing conditions, including antitrust clearance in the U.S. and Germany, Cimpress expects the transaction to close as early as the end of December 2016. Cimpress will provide further background on National Pen and details of the strategic rationale, synergy opportunities, and integration plans concurrent with Cimpress’ second fiscal quarter financial results in January 2017.