Commercial printing M&A update: Q1-2016

Market overview

Commercial printing in the United States is a fragmented industry (approximately twenty-six thousand companies) representing a market with combined annual revenues of approximately $83 billion in 2015. The top fifty companies account for only thirty-five percent of revenues. Due to transportation costs, low volume commercial printing remains a fragmented regional industry with limited concentration of competitors. At higher volumes, the commercial print industry has modest geographic and industry competitor concentration. Commercial print companies located in California, Illinois, Pennsylvania, and Wisconsin account for approximately thirty percent of total US industry revenues.

The industry has experienced continued decline over the past five years as digital products and services displaced traditional printed materials. Declining demand and price pressure resulting from excess capacity has spurred consolidation from industry operators seeking to maintain volumes and profit margins, as well as develop value-added creative and logistics services.

M&A activity appears to have reached an inflection point, trending lower since the second quarter of 2015. With continued reduction in demand, commercial print revenues are expected to fall by an annualized 1.6 percent to $76.5 billion in the five-year period to 2021. Further industry consolidation is likely through M&A activity, albeit at lower levels than in previous years. Growth opportunities are available for those companies with adequate capacity and capabilities. Print advertisements remain a valuable tool to marketing campaigns while continued price pressures in print media (newspaper and magazine) markets may lead publishers to outsource more printing to industry operators.

Source: Baker Tilly Capital, LLC Insights, First Research, IBIS World & The Target Report

M&A activity

There were forty-nine reported M&A transactions involving domestic commercial printing companies during 2015, a fourteen percent reduction from 2014. The year started strong with fifteen recorded transactions in the first quarter of 2015 (Q1-2015) (the busiest quarter of the year), a fifty percent increase over 2014’s first quarter. There were twelve transactions reported in 2015’s second and third quarters, a reduction of twenty-nine percent and twenty percent respectively over the comparable periods in 2014. The trend continued through the fourth quarter of 2015, where ten M&A transactions were reported representing a thirty-three percent decline in activity from the comparable period in 2014. At the time of writing this update, there were ten reported transactions in the first quarter of 2016 (Q1-2016), a reduction of thirty-three percent compared to Q1-2015.

The largest reported transaction with available valuation data during 2015 was ALJ Regional Holdings’ acquisition of Phoenix Color Corporation for $90 million at a revenue multiple of 1.0x and an EBITDA multiple of 4.0x. The limited number of reported transaction values and earnings multiples in the industry make it difficult to develop and evaluate current market transaction multiple comparatives.

From the transaction data available, the commercial print industry seems centered on continued consolidation with M&A activity driven by strategic acquirers who seek out opportunities to drive higher volumes through capacity rationalization.

However, there has also been increased interest from financial buyers in the commercial print industry, specifically those companies involved in graphic media and value added service extensions to commercial printing capabilities such as advertising and marketing solutions.

Source: Baker Tilly Capital, LLC Insights, First Research, IBIS World & The Target Report

Select public company metrics

Comparable public companies are trading in a wide range, with EV/Revenue multiples ranging from 0.2x to 2.2x and EV/EBITDA multiples ranging from 4.2x to 16.6x. Average EV/EBITDA multiples are down eleven percent from their peak during the second quarter of 2015.

Comparable public company trading multiples1 >

1 Data reported in foreign currencies was translated to USD using the average annual exchange rate for each currency. Historically, small to midsize private companies typically sell at a discount to publicly traded comparable companies due to their relative illiquidity, size, risk, and access to capital.

2 Adjusted mean removes any outliers that skew the data. In this case, Cimpress N.V. and InnerWorkings Inc. were not considered in the calculation of adjusted mean.

Source: Baker Tilly Capital, LLC Insights and Capital IQ (03-31-2016)

Comparable public companies EV/EBITDA history

Comparable public company EV/EBITDA multiples >

Note: Cimpress N.V. and InnerWorkings Inc. have not been included in the average calculation as they were deemed significant outliers.

Source: Capital IQ (03-31-2016)

Comparable transactions with reported values (US and Canada)3 >

3Publicly available transaction data is limited, and due to the nature of the industry, deal multiples are generally not available. This comparison is based on a range around the reported multiples for the transactions noted above.

Source: Capital IQ (03-31-2016)

2016 select transactions >

Source: Capital IQ (03-31-2016)

2015 select transactions >

Source: Capital IQ (03-31-2016)

View the full update >

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