Wide-Format Settles Into its Middle Age
The wide-format printing industry is now most assuredly past its salad days and firmly middle-aged. The exuberance of youth — the buy-it-and-they-will-come days — are over. The industry is, as expected in middle-age, highly productive and becoming increasingly specialized. Wide-format digital printing is firmly ensconced as a must-have added service across much of the commercial printing industry. Stand-alone wide-format companies 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, just to name a few.
As we have noted in previous years, wide-format printing technologies are now widely deployed, with nuanced, specialized variations serving niche markets. Digital wide-format equipment is available at a wide range of price points, including the low end where it is deployed across multi-location franchises and storefront operations numbering in the thousands. These trends have resulted in robust competition within the wide-format industry as the business evolves into sub-segments. This means success in the wide-format business now depends on delivering a value proposition to customers that is more meaningful than just owning a large printing device.
At the end of 2021 and beginning of 2022, much of the wide-format industry remains at the mercy of the repetitive outbreaks of new COVID variants. Entertainment events and venues have, in the past, been significant markets for many wide-format printing companies. Sports, music concerts, theatre of all stripes, business conferences, and trade shows have all been impacted, with the resultant reduction in demand for accompanying graphics. Getting back to full stadiums and rollicking crowds has been a process of fits and starts. Repeatedly, just when we thought we could get out and experience normal social events, the virus drags us back in and shuts us down. Despite the dual challenges of segment maturation and the pandemic, M&A activity in the wide-format industry continued.
The Rationale of Wide-Format M&A
When we look back over the past three years and dig into the details to see where the transactional activity has been occurring and trending, patterns start to emerge. Commercial printing companies continue to see wide-format as a valuable added service to their customer base. The transactions in the general commercial business usually involve the purchase of a company with a generic offering of banners and signs, possibly with some value-added attribute such as location or vertical market focus.
Graphic Village, a roll-up of diversified commercial printing companies headquartered in Cincinnati, Ohio, acquired T-Max Graphics, in Muncie, Indiana. The company noted that the acquisition “augments Graphic Village’s large-format printing services” and “expands the company’s presence to Indiana.” As we see in Figure 1, Graphic Village’s explanation for the acquisition is illustrative of the more than two-thirds of the M&A deals in 2021 that were based on the buyer’s desire to expand to a new facility or location.
Tuck-ins, almost non-existent in the wide-format segment a few years ago, are now a regular part of the mix; however in absolute terms, there were only three wide-format tuck-ins in 2021, compared to seven in 2020 (Figure 2). In these deals, the buyer folds the acquired customers into their existing production capacity, hires selected qualified employees with a special focus on those people that touch the customer, 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 production capacity.
As we know from the much more mature general commercial printing segment, tuck-ins are almost by definition the sign of a financially challenged seller or a company that has come to the end of its useful life as an independent. In addition to financial challenges, an owner’s age or desire to exit due to increased real estate values are other possible drivers behind a sale as a tuck-in. For example, Allegra Marketing Print Mail, in Carol Stream, Illinois, acquired The Sign Authority and announced plans to bring the acquired company’s services into Allegra’s location and operate under the Allegra name. The Sign Authority will cease to operate as an independent business.
We expect the hit to the demand in retail and in-person events due to COVID will have an increasingly detrimental effect on mid-size and smaller players in the wide-format segment. The various government financial programs were clearly helpful, and the industry has proven to be very resilient, at least for the short term. Nonetheless, as government super-stimulus becomes history, we expect that there will be fallout among the weaker players as the long-term impact of the economic downturn gradually works its way through the industry.
Product Specialization Drives Wide-Format M&A Transactions
Investors and strategic buyers continued to acquire specialized wide-format printing companies that have successfully carved out a defensible niche serving a well-defined customer base via clear market channels. The bigger players, backed by private equity, continued to execute on their strategy, marching forward right through the COVID pandemic period. In the case of wide-format printing companies that produce home décor, we suspect the increase in home improvement efforts by stay-at-home folks made these acquisitions even more desirable.
H.I.G. Capital’s portfolio company Circle Graphics started 2021 out with the acquisition of Graphik Dimensions, a décor printing and framing company. This acquisition dovetails nicely with Circle Graphics’ purchase in September of 2020 of California-based Bay Photo, a wide-format and photo company that caters to professional photographers and consumers with personalized wall décor products.
Shutterfly, a portfolio company of Apollo Global Management, acquired Spoonflower, which produces, via online e-commerce channels, one-of-a-kind apparel, custom-designed fabrics, and personalized wall décor. Designers compete to offer new and interesting patterns, while homeowners and professional interior designers have unlimited abilities to customize. It may be the ultimate example of product specialization utilizing digital wide format printing to serve highly identifiable market participants.
Other examples of M&A transactions to acquire and expand product specialization were announced in the fleet marking business, a subset within the more generalized business of vehicle wraps. At the end of 2021, the Canva Group, a diversified roll-up of graphic communication services based in Laval, Quebec, acquired Intergraphics Decal in Winnipeg, Manitoba, which specializes in large vehicle wraps including tour buses, semi-trailers, monster trucks, and boats.
Craftsmen Industries, located in Saint Charles, Missouri, acquired GDS Retail & Display Graphics (another tuck-in). For Craftsmen, the acquired wide-format printing capabilities are layered onto a 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 shows, and demonstration vehicles, as well as more standard fare such as super-large building graphics. Wide-format printing provided the branding, the M&A transaction expanded the wide-format capabilities.
TC Transcontinental, Canada’s largest printing company, continued to implement its clearly articulated strategy to move into the wide-format printing and in-store display business. Having executed laser-like on its previous strategic pivot to shed newspaper and magazine printing while transforming into primarily a packaging company, Transcontinental announced that it would pivot again. In 2019, it commenced on its new direction beginning with the acquisition of Ontario-based Holland & Crosby. In 2020, it acquired Artisan Complete in Markham, Ontario. In 2021, Transcontinental acquired BGI Retail, a producer of in-store displays and graphics. Transcontinental knows how to stick to a plan.
Product and service specialization are the key factors that drove buyers’ strategic reasoning behind many of the M&A transactions. As shown in Figure 3, using M&A transactions to acquire new services was the dominant driver in 2021. Geographic territory expansion still played a role in the M&A activity, but was only cited once as the major reason to do the deal.
Six of the deals were backed by private equity, notably involving the bigger and more specialized acquisition targets. However, there were no new platforms acquired by PE firms in the wide-format space, down from one in 2020 and four in 2019, indicating a possible reticence by professional money to enter the business while the retail recovery remains uncertain.
Equipment & Wide-Format Supply Distributors
The deals involving wide-format suppliers were limited in 2021 (Figure 4). Fellers, based in Tulsa, Oklahoma — which claims to be the largest supplier of vehicle wrap substrates — was sold to private equity firm American Pacific Group.
Grimco, the large distributor of graphic supplies, acquired New Hampshire Plastics, a manufacturer of roll and extruded plastic substrates used in wide-format and packaging applications.
The wide-format printing segment has been amazingly void of distressed transactions and bankruptcy filings. As the wide-format industry continues to mature and specialize, cracks will begin to appear in what has generally been a bulletproof business. Consistent with that expectation, we noted four bankruptcy filings in 2020 (Figure 5). Two of the four operated primarily in the trade show graphics business, obviously an area hard hit by the pandemic.
While notable because the segment has been so free of bankruptcies, four filings is not, in our opinion, indicative of major stress cracks appearing in the business.
We are a bit surprised there has not yet been a significant increase in M&A activity in the wide-format segment. However, we believe that it’s only a matter of time, and there will be more transactions as the wide-format business continues to mature (Figure 6). Also, owners will begin to age out and seek an exit from ownership, similar to the trend we see in the general commercial printing business, albeit there are different and additional pressures there.
The “haves” and the “have-nots” will begin to separate, and positions will solidify. The larger companies and 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 accelerate, slowly at first, but it will pick up.
The trends we have discussed over the past several years are still all in play. Franchise systems 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, and ability to 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.
Commercial printing companies have added and will continue to add wide-format printing capabilities. These factors are all still true and will result in pricing pressure to those unable to differentiate via product specialization or ability to uniquely serve a well-defined vertical market.
Mark Hahn is a managing director and founder of Graphic Arts Advisors, a boutique strategic financial advisory and consulting firm focused exclusively on the printing, packaging, mailing, marketing services, brand management, and related graphic communications industries. With more than 35 years of graphic communications experience in the areas of finance, operations, sales, M&A, and general management, Hahn has served as chief financial officer, chief operating officer and other senior positions with several commercial printing companies, as well as founding and eventually selling his own printing company.
The firm assists company owners and management, as well as their lenders, investors and shareholders in the following areas: mergers and acquisitions, sale of business, strategic and financial advisory, capital structure and funding, financial analysis, interim and turnaround C-level management, business valuations and serving as consulting experts. Hahn is the author of The Target Report and is regularly published and quoted in printing industry trade and management journals.
Mark Hahn can be reached at (973) 588-7399 or firstname.lastname@example.org