Industry Maturity Brings Business Opportunities

M&A activity in the wide-format segment has been steady over the past 12 months, with some notable transactions pointing the way forward and indicating continued interest from acquirers in companies that produce wide-format graphics using digital printing technologies. Some of the transactions have been bellwether deals, notable for high enterprise valuation or representing a foray into adjacent technologies for the buyer.

Most of the M&A activity in the wide-format segment is between private companies, so detailed financial data about transactions is not disclosed. However, when financial data is available, we see that companies in the wide-format segment, when sold, sported multiples about two turns higher than their counterparts in the traditional offset commercial printing segment.

The wide-format printing industry has matured, and the barriers to entry have been reduced. Ease of production and franchise systems have enabled many more players to answer the siren call of greater margins that were achieved by earlier adopters of digital wide-format printing. Base-level digital wide-format printing equipment is now more affordable; there is a considerable installed base of machines and many commercial printing establishments now offer wide-format printing. With so many companies now providing digital wide-format printing services, we see continuing and accelerating consolidation, similar to what has occurred in the traditional commercial offset printing segment.

From an M&A perspective, product and service specialization has been the key factor that drives the buyers’ strategic reasoning behind many of the recent transactions. As digital wide-format printing services become more ubiquitous, valuations will drop for those companies that do not achieve differentiation by vertical client focus or product specialization.

Conversely, we expect that higher valuations and deal attractiveness will be driven by specialization in value-added adjacent services. Differentiation has become critical as the larger players move further away from the early days of banner production and square footage pricing.

The Five D’s of Value

All other things being equal (growth projection, EBITDA, size of company, etc.), in our opinion there are five attributes that alone or combined will lead to a higher multiple being paid for print-centric graphic communication companies:

Display: The product is related to the larger formats of visual graphics, applied primarily to retail display, banners and signs, and trade show exhibits.

Digital: The printing technology is inherently digital rather than analog. Digital enables instant or little makeready, personalization and variability.

Data: The service offered includes information processing to drive addressability and/or variability of the printed product.

Design: The company offers image creation, image manipulation and repurposing of content, which leads to increased value of the core printing service and customer retention.

Distribution: Logistics and fulfillment services place printed products within a larger value chain, moving away from commodity pricing.

By definition, digital wide-format printing companies include the first two “D’s” in our list of value-building attributes. Hence, in our observations of the current market for print-centric commercial companies, those involved with the production of wide-format products inherently start out with a higher baseline valuation than traditional commercial printing companies.

Combining Display, Digital & Distribution

The high-water-mark transaction in the wide-format segment over the past year has to be the acquisition of BuildASign by Cimpress, the corporate parent of Vistaprint. BuildASign, formerly backed by a private equity firm, is an online printing service that specializes in yard signs, banners, magnetic vehicle signs and fabric banners. The acquired company includes the companion business Easy Canvas Prints, 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 acquisition was 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, in addition to positive financial metrics, it incorporates three of the five D’s: the printing technology is Digital; the product is related to Display; and the company understands and implements the Distribution of the printed product via its online portal. Finally, there is scale. While many companies have online customer-facing proprietary software, the BuildASign and Easy Canvas Prints websites, which together bring in revenues more than $100 million, were a unique opportunity in what has become a “me-too” crowded online Web-to-print space.

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.). 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. In response to increasing market pressure, 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.

Adding Elements of Design and Data

Impact XM describes itself as an “Experiential Marketing Agency” that produces trade show exhibits, sponsored event environments and shopping venues that combine bold graphics and technology to tell stories on behalf of its clients.

Impact XM acquired Endo Networks to expand the company’s services to interactive technology, an adjacent service to its core offerings: design and production of trade show exhibits, event spaces and branded environments. The acquired company uses technology in the form of graphically-enhanced tablets, PC’s and monitors to attract (or in Endo’s term, “intercept”) attendees, engage participation through contests, gifts and coupons and entertain with participatory games (or via what Endo calls “gamification”).

As an integrated provider of technology-based branded environments, the Impact XM platform hits all of GAA’s five D’s of value, the factors that we believe drive higher enterprise values in today’s market for print-centric graphic communication companies. The company’s offerings include Design combined with Data services; are focused on retail Display output (i.e. wide-format); and are produced primarily utilizing Digital printing technologies. With several U.S. locations and global partners, it also assists its clients with the Distribution of the graphic environments to the installed sites. With all five D’s combined in one platform, Impact XM looks like a home run in the making.

Building National Depth of Service

Privately owned Taylor Communications, with more than $2 billion in revenue, expanded its presence in the New York metro wide-format market. Taylor announced the acquisition of Plug Production Group, a New Jersey-based printing company providing wide-format graphics, window displays and grand-format outdoor graphics. Plug was quickly integrated into Vectra Visual, Taylor’s brand for its national provider of wide- and large-format graphics. In addition to the acquired New Jersey location, the Vectra unit has facilities in Ohio, Nevada, Oregon and Long Island City, N.Y. Without the significant value-additive attributes of the prior two examples, the Taylor acquisition of the relatively small Plug Production Group is illustrative of another trend in wide-format printing, the roll-up to build out a larger national footprint of a service offering.

In another example of a geographic build-out, Phase 3 Marketing and Communications, the wide-format roll-up based in Atlanta, acquired FLM Graphics in Fairfield, N.J. FLM had itself been an active acquirer, having tucked-in several New York metro area competitors. Notably, one of the companies acquired by FLM was Trucolor, formerly a photo lab that became FLM’s wide-format division. Trucolor appears to fit nicely into Phase 3’s focus on the wide-format printing segment. In addition to the New York metro location it gains with the acquisition of FLM Graphics, Phase 3 has locations in Charleston, S.C.; Nashville, Tenn.; and in Dallas, where it acquired wide-format printer Gigantic Color. When announcing the acquisition of FLM, the buyer noted that it added offset printing capabilities to its offerings and gained better access to the Northeastern market. Presumably, Phase 3 had a choice of multiple acquisition candidates if all it wanted was a New York-area commercial printer, however the wide-format offerings likely tipped the balance to a higher value and final selection of FLM Graphics as the target company in this geographic play.

Looking Forward

For companies in the undifferentiated commercial printing segment, the addition of wide-format printing capabilities remains an attractive adjacent service offering, building on many of the same skill sets and serving common customers. Done right, the evidence is that wide-format services increase company value and attractiveness in an M&A sale process.

Established wide-format printing companies will find the market for their services increasingly competitive. The companies that are able to differentiate with value-added specialized capabilities will achieve higher company values. In the competition to remain a high-margin darling within the larger print-centric graphic communications industry, these differentiated wide-format printers will be the chosen partners in the M&A dance.