Wide-Format is Middle Aged: Stable, Confident, and Specialized

Wide-format printing is now a well-established segment of the broader printing industry. Owning and operating wide-format printing equipment is no longer the express ticket to sustainable profits. The winning game has moved to specialization, with commoditization clearly in play at the lower end of the market. The leading companies have developed a range of winning strategies. Some have tooled up and developed an ability to produce unique specialized products. Others are adept at serving a well-defined industry vertical. Some have augmented their wide-format production with sophisticated logistical support. They may employ, manage, and work with highly competent installation teams. Other winners have mastered a robust e-commerce channel strategy, or some combination of the above.

The commoditization of the more generalized banners-and-boards segment has been seeping into the wide-format business for years as commercial job-shop printing companies added digital inkjet printers to their equipment mix. Digital wide-format equipment is now available at a wide range of price points, including at the low end where wide-format printers are deployed across multi-location franchises and storefront operations that now number in the thousands. These trends have resulted in robust competition within the wide-format industry as the business evolves into sub-segments. Success in the wide-format business now depends on delivering a value proposition to customers that is more meaningful
than just owning a wide-format printing device.

It appears that the U.S. is now finally in the post-Covid phase. Entertainment events and venues were, before Covid, significant markets for many wide-format printing companies. Over the past several months sports events, music concerts, theatre productions, business conferences, trade shows, and travel have come roaring back. Stadiums, theatres, convention halls, shopping malls, airports, and city streets are busy. Brands and event sponsors need to promote and compete, and wide-format graphics fulfill those needs. Several wide-format providers we have spoken with reported that as 2022 progressed, orders increased significantly, and their equipment was fully booked out for weeks in advance.

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While overall M&A activity in the broadly-defined printing, packaging, and related industries in 2022 remained at the same level as the prior year, M&A activity within the wide-format segment increased 46% compared to 2021, as measured by the number of publicly reported transactions.

The Rationale Behind Wide-Format M&A

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Based on the deal logs of transactions over the past four years — recorded in The Target Report — we dug into the details, as reported by the buyers and sellers, to determine the rationale behind the deals. Some clear patterns emerge.

The main driver behind M&A transactions over the past four years has been, and continues to be, the addition of a production facility. This is clearly indicative of an overall healthy business climate for this segment (we see the exact same trend in the packaging segments).

For example, H.I.G. Capital’s portfolio company, Circle Graphics, announced the acquisition of Jondo. The acquired company produces canvas prints and photo products, and operates three facilities across the U.S. With a core focus on out-of-home graphics and home décor products, Circle Graphics now has seven production facilities in six states. The production numbers reported on the company’s website are staggering: 88 grand-format and large-format digital printers, 20,000 prepress files processed daily, and more than 431 million square feet of material printed annually. No wonder the logic behind announced acquisitions includes additional production facilities.

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Vomela, the diversified wide-format company based in St. Paul, Minnesota, announced two transactions that added significant production capacity. Vomela, which has its origins in the fleet marking business, continued its growth momentum with the addition of vehicle graphics company Gillespie Graphics in Wilsonville, Oregon. Closer to its home base, Vomela also added Blaine, Minnesota-based Visual Impact to its portfolio in 2022.

Tuck-ins — when a buyer acquires the intangible assets of a business — were almost non-existent in the wide-format segment a few years ago. In these deals, the buyer folds the acquired customers into their existing production capacity, hires selected qualified employees, and maybe cherry-picks some of the equipment. The seller is left to close-up shop, sell off the remaining equipment, and wind-down the business entity. The result is almost always a reduction in excess or outdated production capacity.
While not limited to the acquisition of financially challenged companies, tuck-ins are often indicative of some form of overcapacity in a particular segment, if not downright financial distress at some level. Other factors, such as better use of real estate, or a convenient time to pause the CapEx cycle, also drive sellers to consider tuck-in offers.

As the wide-format segment matures, tuck-ins are now a regular feature of the M&A landscape. This was particularly evident in 2020 when the Covid pandemic stressed many businesses, which in turn motivated tuck-in deal structures, as indicated by the bump in the orange line in the chart on page 34. In 2022, as we returned to a more normal business environment, there were only four wide-format transactions in which consolidation appears to have been the primary logical driver behind the deal.

While the wide-format segment is experiencing a renaissance of sorts due to pent up demand, we expect that the stress from the Covid period will have a lasting negative impact on some mid-size and smaller players in the segment. As the financial boost from government super-stimulus programs becomes history, there will be more consolidation opportunities in the wide-format business.

Commercial printing companies were largely absent as buyers in the wide-format segment in 2022. While commercial printing companies continue to see wide-format as a valuable added service to their customer base, it appears that at least during this immediate post-Covid period, owners of commercial printing companies are either growing their wide-format business internally, outsourcing overflow work, or are investing elsewhere.

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Geography & Specialization Drive Wide-format M&A Transactions

Companies exclusively focused on wide-format printing have differentiated themselves into specialties including in-store retail display, events marketing and decoration, vehicle wraps, building wraps, large fleet markings, and consumer décor products. As specialization has increased, so has the rationale to expand via the acquisition of companies that produce similarly specialized products. Since many of these companies are already niche-focused, the next logical step is geographic expansion.

Olympus Group, headquartered in Milwaukee, is a great example of product specialization that has supported geographic expansion. With four distinct business units, including the unusual business of manufacturing mascot costumes, the company is probably best known in the wide-format business for its grand-format graphics at sports events and trade shows. In 2022, Olympus acquired Screaming Images in Las Vegas. Olympus’ other strategically located production facilities serve the Orlando trade show and events market, as well as the Nashville entertainment scene. Being close to the action counts in grand-format.

Highly specialized wide-format businesses sought out and acquired other specialty graphic providers. Craftsmen Industries, located in Saint Charles, Missouri, purchased Zane Williams. The acquired company specializes in light pole and street pole banners. For Craftsmen, the acquired wide-format printing capabilities are layered onto its existing highly specialized business of engineering and building trailers, trucks, and other mobile event vehicles. Examples of their products include mobile sampling kitchens, trailers that fold out into stages, trade show and demonstration vehicles, as well as more standard fare such as super-large building graphics. The Zane Williams M&A transaction expanded the company’s wide-format capabilities to another clearly defined niche: light poles. We can envision customers utilizing the light pole banners up and down a main avenue, announcing the arrival of a mobile medical clinic, all manufactured by Craftsmen.

Reprographics & Convergence

Crisp Imaging, originally a reprographics company based in Costa Mesa, California, has been actively adding locations across the region. In each case, the logic behind the deal appears to be expansion to another locality. Crisp announced several acquisitions in 2022, up and down the state.

Reprographic companies have their roots in the blueprint business, and traditionally served the architecture, engineering, and construction management trades. As blueprinting services migrated over to electronic systems using Océ and Kip monochrome systems to scan and output technical drawings, they naturally developed wide-format expertise. It was a small leap from there to more generalized digital color wide-format printing. Reprographic businesses, such as Crisp Imaging, are poster child examples of convergence within the graphic communications industries.

Equipment & Wide-Format Supply Distributors

There were three deals involving distributors of wide-format supplies in 2022, one more than in 2021. In equipment, Agfa acquired the Inca digital printing device division of Screen, makers of high-end flatbed printers. A visitor to any recent printing trade show cannot help but notice that the number of flatbed printer manufacturers has proliferated. The Inca deal likely heralds more consolidation to come in the equipment end of the wide-format business.

Wide-Format Challenges

We find very few distressed transactions and bankruptcy filings in the wide-format segment. As the wide-format industry continues to mature and specialize; however, there will be distress in what has generally been a very healthy business. We found only two bankruptcy filings in 2022 in the broadly-defined wide-format segment. Both were small companies, and both were in the signage business.

Looking Forward

The trends we have discussed over the past several years are still all in play. Franchise systems and many others now sell wide-format printed products online, and have systemized and captured the low end of the market. Digital wide-format printing equipment is now more affordable at all levels of quality. Printers now can print on just about any substrate you can imagine. Computer-driven flatbed cutters and routers, which seemed magical a decade ago, are now ubiquitous must-have devices installed in any serious wide-format shop. Overall industry capacity continues to increase as commercial printing companies add wide-format printing capabilities. These factors are all still true and will result in pricing pressure on companies that do not differentiate via product specialization or uniquely serve a well-defined vertical market.

Last year, we expected an increase in M&A activity in the wide-format segment. 2022 did not disappoint. Owners that got into the business — either at its infancy, or those that migrated over from photo processing labs, screen printing shops, or prepress houses — are now beginning to age out and seek an exit from ownership. This is the same demographic trend we see in the general commercial printing business, albeit there are different and additional pressures there. These trends will continue.

The winners will continue to pull away from the also-rans and solidify their advantages. The larger companies — especially those with financial backing from investment firms — will continue to acquire the highly differentiated and specialized sub-segments, while the more generalized and undifferentiated companies will experience margin compression. Consolidation within the wide-format segment will continue to accelerate, but slowly. We do not expect any sudden paroxysm of consolidation as happens periodically in the more generalized commercial printing segment.