Commercial printing M&A update: Q4-2016

Baker Tilly Capital, LLC’s Commercial printing M&A update provides an update on M&A in the commercial and print industry where either the target or buyer is located in the U.S. For the purposes of this publication commercial print includes commercial, label, wide format and screen printing.

Commercial printing market overview

Commercial printing in the U.S. is a fragmented industry (approximately 26,000 companies) representing a market with combined annual revenues of approximately $84 billion in 2016. The top 50 companies account for only 35% 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 30% of total U.S. industry revenues.

The industry has experienced a continued decline over the past five years as digital products and services displaced traditional printed materials. Higher costs for labor and materials combined with ongoing sluggish demand for printing services will present challenges for printing companies in 2017 and beyond. According to a report published by Print Impressions, U.S. printing revenue is forecasted to drop by 2 percent in 2017. Companies in the packaged foods, medical/pharma, banking/insurance, telecommunications, and non-news publishing industries will lead print spending in 2017. The areas with the strongest growth in print spending are expected to come from food service, home improvement and entertainment.

One of the greatest challenges that the industry faces is its dependence on business activity. The volume of commercial printing is closely tied to the health of the U.S. economy, particularly advertising and consumer spending. The industry recently received good news with U.S. corporate profits, an indicator for corporate demand for printing services, rising 2.8% in the third quarter of 2016 compared to the same period in 2015.

Commercial print M&A activity

M&A conditions for commercial print companies improved in 2016. In 2016 buyers returned to the market and purchase multiples also increased to levels that will likely stimulate increased M&A activity throughout the industry. Sellers that are able to demonstrate a high level of competence, have specialized capabilities, and that serve well-defined vertical markets will continue to be attractive targets during the coming years. The increase in M&A activity also indicates that buyers are anticipating improved business conditions for commercial printers.  

One of the most acquisitive buyers during 2016 was Orora Limited. Orora based in Hawthorn, Australia, acquired two U.S commercial printers in 2016. On March 1, 2016, Orora acquired IntegraColor, LLC for $70 million with a 6.9x EBITDA multiple. This acquisition is intended to provide Orora a platform company for Orora’s strategic initiative to establish a significant U.S.-based point-of-purchase business presence. With its platform in place, Orora announced on December 15, 2016 that IntegraColor was acquiring Register Print Group Inc. for $44 million with an effective EBITDA multiple of 6.2x. Orora’s management believes that the acquisitions represented a positive step in executing Orora’s growth strategy.

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.

Select public company metrics

Comparable public companies are trading in a wide range, with enterprise value (EV) / revenue multiples ranging from 0.2x to 2.2x and EV/EBITDA multiples ranging from 4.1x to 17.6x. The adjusted average EV/EBITDA for 2016 was up 2.9% compared to 2015.

Comparable public companies EV/EBITDA history

Source: Baker Tilly Capital, LLC Insights, First Research, IBIS World and the Target Report

Comparable public company EV/EBITDA multiples >

Select commercial printing transactions with transaction values >

Select commercial printing transactions (closed in 2016) >

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