Better together: print M&A activity shows no sign of abating

By Richard Stuart-Turner, Monday 22 July 2019

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While mergers and acquisitions are nothing new in print, the latest PrintWeek Top 500 found that there were at least 77 deals involving UK printers between March 2018 and March 2019 – the busiest period in M&A activity in recent years.

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And things have not slowed down since, with deals involving companies big and small still happening in nearly every corner of the industry.

Among those finalised in the past month alone include DG3’s purchase of Newnorth, Bell & Bain’s merger via acquisition of J Thomson Colour Printers, and Positive ID Labels’ double buy of Banbury Labels and Dabbon Labels.

Suppliers have also seen their fair share of action, with Japan Pulp and Paper’s acquisition earlier this month of Premier Paper Group heading up the recent moves on that front.

Hopefully all these deals will prove successful, but acquisitions can, and do, go wrong for companies that cannot financially or strategically support their ambitions or, indeed, for a myriad of other reasons.

“Acquisitions can make sense, but be wary and be very clear why it’s advantageous to your business,” warns BPIF chief executive Charles Jarrold.

“Similarly, be sure to understand the business and do your due diligence on the acquisition before finding out late in the day that things are not what you expected. I used to work for a big US company who used the term ‘deal zeal’ – the buzz of getting caught up in an exciting acquisition can impede clear judgement.”

But acquisitions are nevertheless very popular in print as the industry continues to consolidate to ease overcapacity and increasing labour and raw materials costs.

They are also far and away the most popular form of M&A activity, with true 50/50 mergers proving incredibly rare in print, the only one listed in the latest Top 500 being Bright-source’s merger with Signal, which was already its sister company to begin with.

Many acquisitions, however, are promoted as being a merger via branding, communications with clients and PR.

“Mergers ae often billed as 50/50, but the reality is that this is rare in practice,” says Jarrold.

“There isn’t room to duplicate all functions, so one team or another, or one person or another, need to lead and businesses need clear structures and management processes. There is however room for making sure that the best of each business wins through – probably not 50/50, but a dispassionate look at what’s best.”

Richmond Capital Partners director Kevin Barron says true 50/50 mergers are often a “needs must deal” that happens when two companies that cannot afford to buy each other join forces to eliminate excess capacity.

“Generally you would start a new company that acquires the two companies, then at some point there is a rationalisation that goes on but that generally takes six to 12 months to work its way through, because you can’t merge companies in five minutes.

“So you end up with duplication for a while. We knew of one company who didn’t rationalise quickly enough and ended up with four finance directors.

“And egos can get in the way with 50/50 mergers – ‘my business is better than yours’.”

Barron says culture “is the biggest reason for things to fail” when two businesses come together.

“If one is a ‘kick ass and take names’ company and the other is more ‘oh dear we need to have a training opportunity here because this guy doesn’t know how to do something’, you can’t put the two together because it doesn’t work.

“If the culture is wrong, we say don’t bother. It’s not one way is right, and one is wrong, you just can’t merge a left-handed culture with a right-handed culture because you end up with a cack-handed culture.”

He adds: “Be aware of what you are and how you work and tell people that that’s how you do things here. If it doesn’t fit with the buyer or seller, you can save yourself a lot of money and work by pulling the plug early.”

Nicholas Mockett, head of packaging M&A at Moorgate Capital, says acquisitions are sometimes billed as mergers “so that everybody still feels they are part of the same family – it’s just that it’s a bigger family”.

“You might also have one company buying another for reasons like tax considerations – people might end up with some sort of crystallisation on a capital gain if you do it by an actual merger into a new entity – so it may technically not be a merger even if it is one in spirit.”

While mergers are a slightly different beast, then, consolidation is not the only driver for print and packaging acquisitions. Barron points out that a lot of owners of print companies “who enjoyed the good years of the 1980s and 1990s” are now reaching retirement age and looking to sell up.

Federation of Small Businesses (FSB) national chairman Mike Cherry adds that M&A enables companies to expand into new markets or locations.

“They might also choose to merge or acquire in order to quickly gain new skills and technologies for their business,” he says.

Mockett adds: “If you’re about to have to go through a major capital reinvestment programme, it might be a better idea to buy a competitor who’s already done it rather than putting capacity out into the market too quickly.”

He says packaging also has the advantage of being “reasonably robust”, even during times of recession, and that these companies are therefore attractive to private equity firms who have “a lot of dry powder that they are keen to deploy into businesses”.

Following a buoyant start to the year, M&A activity in print looks unlikely to slow down any time soon.

“Businesses are developing new approaches all the time, and there will be occasions where larger or more acquisitive organisations want to gain these abilities, and so will acquire,” concludes Jarrold.


OPINION

There are a host of factors that can drive M&A activity

sheehanBarry Sheehan, director, Livingstone Partners

In a relatively mature industry such as print, where organic growth opportunities can become harder to access, M&A is often used as a tool to create shareholder value over and above the overall market trend.

While this is one driver of M&A, there are a whole host of factors that can fuel activity. For buyers, gaining access to new products and services remains a key one. A good example of this in the print world was Canada’s Transcontinental acquisition of Coveris North America, a provider of packaging solutions.

For sellers, M&A can offer an opportunity for a business owner to realise a life’s work through the sale, or part-sale, of his or her business. Often owners may sell part of their business to a larger group. This way, they can access a wider distribution network to help them scale the business faster.

When executing an M&A process, support from a multi-disciplinary team is key. The skills and resources needed to execute a successful transaction are distinct to those of day-to-day operations and it is important that a prospective acquirer equips itself with these capabilities before embarking on an M&A strategy. Also, in today’s competitive M&A market, an acquirer will fare better by adopting a pro-active approach to sourcing and executing acquisitions.

Acquisitions tend to be a more common route than mergers. Quite simply, it is more straightforward for a company with greater financial resources to integrate with a smaller one. True 50/50 ownership mergers can become more complex given the decisions shareholders face: how post-deal branding will work, how to pool resources, and who will lead the combined group.

While the outlook for the rest of 2019 is hard to predict, and the uncertainty around Brexit isn’t helping, we are still seeing strong demand from international acquirers. Also, UK private equity firms have significant capital to deploy and are active in all sectors.


READER REACTION

What has the M&A experience brought to your business?

dochertyStephen Docherty, chairman, Bell & Bain

“J Thomson Colour Printers has absolutely no debt and owns all of its equipment and everything outright. And what they have in experience, knowledge and structure, both management and team wise, is hard to come by. We’re a very strong force now financially and mechanically and it also makes growth nice and easy, because first and foremost for us to grow we need more space. If you take buying a new building and a new press, then training up operators, you’re not really hitting the ground running.”

kendallIan Kendall, chief executive, Reflex Group

“Things aren’t brilliant for a lot of people right now and some are looking to maybe merge or find a bigger company to help them out. We have done seven acquisitions since the start of 2008. My advice is that if it looks too good to be true, it will be, and if something looks bad, it’s going to be worse than it looks. Some of our acquisitions were to add a different product range to our portfolio – it’s always easier to acquire knowledge than to start from scratch.”

hodsonJenny Hodson, sales and marketing director, GH Display

“We acquired Hytner Exhibitions last December and I would say it’s gone better than we expected. The unknowns on the Hytner side have been much better than we’d allowed for. We thought that we might lose some business in the acquisition but that hasn’t been the case, which is really great and down to the fact that it has been business as usual for both companies. We were worried about how the teams would work together but we’ve been very lucky with people’s characters – everyone has just got on with it and wants it to work.”

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