From the top end of the scale, with Polestar buying the Goodhead Group and AGI World acquiring Shorewood Packaging, to small distressed purchases like Alpha Media picking up the business and assets of Steffprint, the print and pack-o-sphere is seemingly awash with deal-making.

"With regards to the wider market, there is no doubt that there has been more activity in the M&A space over the last year," says Simon Moore, managing director of Eclipse Colour, which completed its acquisition of 4DM last September.

There are a number of possible drivers for any M&A deal, including accelerating growth, adding new skills and capabilities, acquiring clients and consolidating in view of declining markets.

Former Lateral Group and DST Output UK chief executive Nick Dixon, now a consultant with Hannibal Ventures, whose print M&A credentials include multiple business acquisitions and sales, sees plenty of reasons for the recent spate of M&A to continue, although he expects the type of deals to differ widely by sector.

"If you look at more commodity-based products, such as magazines and catalogues, there is polarisation in that you have to have scale and efficiency, and the best possible equipment to make a return on capital," says Dixon. "So I think you’ll continue to see major consolidation in those areas as you’ve seen over the past few years."

Moore agrees, and highlights York Mailing’s acquisition of Pindar as a prime example of a successful consolidation play.

"We deal with many clients who use high pagination catalogue printers and in the case of York and Pindar their feedback is positive," he says. "Clearly York had a defined strategy of what they wanted to do and, certainly from the clients we share, they seem to have got it right."

In the printed (and non-print) marketing communications realm, we have seen multiple deals in recent years, as the likes of first Lateral Group, then St Ives and Communisis bought up data analytic, creative and digital marketing businesses to complement their print offering. The biggest single deal came in the summer of 2011 when DST Output UK (then Innovative Output Solutions) acquired Lateral Group.

Dixon argues that M&A will continue to be a feature of this sector but does not expect there to be any print acquisitions from these big three firms. "I don’t think they will be looking to acquire assets in those areas," he says.

"I think they’ll be looking to acquire more service propositions, which will provide them with a higher multiple," he adds.

"The question really is how much more consolidation do those businesses want to do and at what price? Everything comes down to a price proposition and, certainly if you’re a public company, what’s going to drive the share price of these businesses."

This tallies with Communisis chief executive Andy Blundell’s own description of the firm’s strategy, which he stressed is very much focused on organic growth, augmented by selective M&A.

"M&A can play a role in bringing specific skills and capabilities that are relevant to clients’ needs," he says. "At the consolidated output end of the market, which isn’t relevant to what we do, you will continue to see consolidation because the market is declining in volume, there is margin pressure and clients increasingly want to deal with strategic suppliers.

"But in terms of what we are interested in, it will continue to be businesses that are relevant to our front end, including content, creative, data analytics and digital marketing."

Regardless of the drivers for any M&A, in any acquisition intangibles related to culture and leadership can make or break a deal.

"How easy it’s going to be once you’ve acquired a business, to grow and integrate it, is key with every M&A. Some things might look good on paper but you’ve got to make sure you’ve got a strong team to complete the integration. Culture is key, as is size and existing scale," says Dixon.

Mark Cornford, managing director of Integrity Print, goes as far as to say that – for him – culture is the most important factor. "I look at businesses regularly and the most important thing when I look at an acquisition is that the culture has got to feel right," he says.

"You can have all the raw ingredients on paper, but if the culture is wrong then I wouldn’t go for it. I would rather be small and pure than big and disjointed with differing values across the businesses."
The seller’s motivation will also be a factor, as will their needs in terms of the structure of the deal and their involvement with the business going forward. As with anything in business, Dixon says, a deal needs to be equitable to succeed.

"It’s got to be a fair deal for all parties concerned and there’s got to be trust from both sides. At the end of the day, you can sit down and go through all the legals and all the due diligence, but whether you’re acquiring a company or being acquired, you’ve got to be able to work with each other going forwards for every party to benefit," he concludes.

OPINION
Packaging industry holds the potential for growth

Nicholas Mockett, partner, Moorgate Capital
Not so long ago, I attended a talk where the speaker, from an authoritative player in the supply chain, suggested that in the not very long term, the only printing that would take place would be on packaging. This shocked the audience, which included publishers and printers. I don’t necessarily agree with that view. But, from a corporate finance and mergers and acquisitions (M&A) perspective, it means two things.
First, the M&A activity in traditional print is likely to be mature players coming together to realign capacity (supply) with the prevailing levels of demand. Probably the easiest examples of this are newspaper printing and directories, where traditionally paper products migrate online.

Examples of this may be seen in Transcontinental’s acquisition of Quad/Graphics’ Canadian printing operations and Polestar’s Goodhead Group takeover. Also, companies that might have once been regarded as printers will evolve services, as St Ives has done in growing its marketing services. Similarly, the equipment manufacturer Konica has evolved through acquiring a print management company.

The second is that printed packaging markets are likely to grow and these companies will come together for the usual reasons: synergy, access to one another’s customers, a broader geographic footprint, one-stop supply of various products, integration and access to complementary technologies.

There has been a flurry of M&A activity in Europe in the last half year. For instance, Graphic Packaging of the US, North America’s leader in printed folding cartons, has made two significant deals; the acquisition of Contego Cartons and the AR Carton beverage businesses. This has rapidly made Graphic Packaging a major player in the printed packaging market in Europe. Similarly, the Contego Healthcare business is to be acquired by Filtrona, which already prints complementary products, such as tapes and security products.

Another example of corporate finance activity in printed packaging is the equity stake taken by Sun European in Paragon Print and Packaging. Paragon prints labels, carton board and flexible materials. The attraction for private equity investors is the robust and defensive nature of many types of packaging, such as food, where the fundamentals are strong thanks to demographics and trends in convenience and reducing food waste.

Looking at the packaging industry, the only two concentrated segments are glass and metals, due to their maturity and capital intensity. If you look at other substrates, such as board, plastics and labels, there is a far more fragmented industry, hence there is likely to be more M&A. Given the fragmentation of media, which has had an impact on the traditional print channels, the role of packaging in the marketing mix is increasing. More decisions are made in store at point of sale so the ability of packaging to influence the consumer carries more weight than when there was one commercial TV station. The printing on the packaging along with its physical properties will be a differentiator and attract strategic investors.

READER REACTION

Mark Scanlon, chairman, Walstead Investments
"Deals being completed within the print manufacturing sector will more and more be predicated on consolidation, whereby businesses are acquired with the principal objective of carving out surplus costs in order to boost profits against a backcloth of falling revenues. Values for these types of deals tend to be based on assets (rather than a multiple of profits), which simply reflects the dearth of buyers and the expected deterioration of the target’s earnings."

Mark Cornford, managing director, Integrity Print
"A lot of businesses at the moment are interested in jettisoning what they see as the black sheep in their portfolio, so there is plenty of opportunity out there – it’s just a question of price. When I bought Integrity, it was because I saw a great opportunity in a business that was a bit of an ugly duckling in Communisis’ portfolio. Communisis wanted to get rid of it. However, because I love the business, from a staff point of view they felt energised because they knew that they were respected and wanted by the MBO team."

Simon Moore, managing director, Eclipse
"In terms of our acquisition of 4DM, it was about synergies and expanding the marketing services portfolio of Eclipse Colour. When we took an initial 10% stake two years ago, it was always part of a bigger plan to buy the complete business over five years. It was clear to me quickly that there were massive benefits in having 4DM as part of our core services, in helping us to open up bigger opportunities with more clients. The combined client base are now looking at other services which Eclipse and 4DM could not offer independently before."