Cimpress: Getting Bigger by Staying Small

Cimpress, the corporate parent of Vistaprint, announced the acquisition of BuildASign, an online printing service that specializes in yard signs, banners, magnetic vehicle signs and fabric banners. The acquired company includes the companion business EasyCanvasPrints, an online seller and producer of printed wall décor. Both the signage and the wall décor websites are perfectly aligned with the Cimpress strategy of "mass customization" of printed items served up online at the micro customer level. In a sure signal that Cimpress sees the consumer market as the next frontier of customized printed items, the emphasis in the official press release about the transaction is focused on the "fast-growth canvas-print wall décor" segment while "reinforcing the market position" in business signage.

The cash transaction values the BuildASign company at $280 million, a multiple of 2.17 times trailing twelve-month (TTM) revenue of $129 million. EBITDA of the acquired company was not disclosed, however the multiple of EBITDA paid was described as consistent with the price Cimpress has paid for its past acquisitions. One analyst estimated the multiple paid for BuildASign at "high-single or low-double digits" times TTM EBITDA. The implication is that the acquired company was producing EBITDA somewhere in the range of 20% of revenues, at the upper end of performance for most print-centric companies. Cimpress itself trades on the public markets in the high-double digits, expressed as a multiple of EBITDA.

The acquisition is clearly strategic for Cimpress which can utilize its expertise in online customized printed products to further grow the sign and décor segments of its business. Cimpress also expects that the acquisition will not only be strategic but will also meet its minimum internal rate of return of 15% for M&A investments. For many companies in the printing industry, it's difficult to understand the EBITDA and enterprise values achieved by BuildASign. In our view, the company achieved its high value because it incorporates three of the "five D's" where we see higher valuations awarded within the commercial printing segments: the printing technology is Digital, the product is related to Display, and the company understands and implements the Distribution of the printed product. (The other two D's driving value in commercial printing are Data and Design.) And finally, there is scale. While many companies have online customer-facing proprietary software, the BuildASign and EasyCanvasPrints websites, with in excess of $100 million in revenue, were a unique opportunity in what has become a "me-too" crowded online web-2-print space. Size of the seller and the opportunity to move the needle at Cimpress is another factor that likely led to a higher multiple being paid for the company.

We noted in the last Target Report that the wide-format industry is maturing and there have been a few bankruptcy filings in the segment. In our conversations with wide-format print providers, many have reported pricing pressure at the lower end of the product offerings (small signs, banners, etc.). Digital wide-format printing equipment is now more affordable and there is a considerable installed base of machines. Many commercial printing establishments now offer wide-format printing. The acquisition by Cimpress, a highly efficient provider, will only increase pricing pressure at the bottom of the market where cost and ease of ordering is more important than personal-touch service. The larger and more sophisticated wide-format providers are increasingly focused on providing value-added services such as image enhancement, image repurposing, onsite installation and managing the logistics required for large campaign launches.

In the competitive online market for printed products, it's no longer enough to be in the market with sophisticated customer-facing software, even if the revenues are significant. Publicly traded CafePress, listed on the Nasdaq, was acquired by online photobook provider Snapfish. CafePress, a legacy company from the dotcom era that offers personalized items such as coffee cups and T-shirts, is described by the founder as a "pioneer offering personalized and custom merchandise." The CafePress website claims to offer over "one billion items crowdsourced from a global community of more than two million independent designers." Impressive statistics, but nonetheless, with negative profit margins, declining revenues, and negative EBITDA, the company was valued in the sale to Snapfish at $25 million, or only 0.32 times TTM revenues of $78.5 million. Online software is nice, personalization is good, printed items are still in demand, but when it comes to enterprise value in the printing industry, growth and profits matter most.