R.R. DONNELLEY ACQUIRES CONSOLIDATED GRAPHICS
Could this acquisition open new opportunities for other commercial printers?
R.R. Donnelley created an immediate buzz in the graphic arts community and on Wall Street when it announced it will acquire Consolidated Graphics (CGX). According to its Oct. 24, 2013, press release, the $620-million deal has been unanimously approved by each company’s board of directors.
Consolidated Graphics shareholders will receive $34.44 in cash and 1.651 of R.R. Donnelley shares for each outstanding share of Consolidated Graphics they own. R.R. Donnelley will also assume Consolidated Graphics’ debt.
TEN TIMES BIGGER
With $1 billion in annual revenue, CGX consists of 70 operating companies with 5,288 employees spread across 27 states, Toronto and Prague, as well as a strategic alliance in Japan. Founded in 1864, Donnelley has 55,000 employees worldwide, with manufacturing operations in North America, Latin America, Asia and Europe. Its 2012 sales were $10.2 billion.
“This adds to our footprint in a major way,” said Thomas J. Quinlan III, R.R. Donnelley’s president and CEO. “It gives us [more] digital printing, packaging and signage [capabilities] as well as some other high-growth segments.”
Noting that CGX’s products encompass everything “from point-of-sale, financial, healthcare, brochures, packaging and grand format,” Quinlan said there isn’t a tremendous overlap between the two companies.
The CGX acquisition is the biggest for Donnelley since 2010, when it acquired Bowne for $481 million, and the largest of the 13 deals it has made over the past three years. Quinlan said the company is open to additional acquisitions “where we can add capabilities to this company and not tax our balance sheet.”
In August 2013, Joe Cahill of Crain’s Chicago Business noted, “Quinlan is racing against time to diversify Donnelley away from traditional printing. An acquisition spree over the past several years created revenue streams in areas such as logistics, online document services and financial data. The goal is to make Donnelley a one-stop shop for print and digital communications services.”
Nonetheless, the October 2013 acquisition caught many industry observers off guard—and we’ll have to wait until the pertinent financial documentation is released to learn the specifics of this courtship. The news generally drew positive responses in social media channels. “Prepare to be assimilated!” joked one printer. Others noted that CGX bolsters Donnelley’s digital reach.
“In a mature market where sales are declining and profitability is hard to achieve, everyone is looking for companies that have found ways to increase sales and maintain profitability,” said Howie Fenton, a senior consultant with NAPL. “Acquiring an innovative company like CGX is one way to try to continue your sales growth and help fight the inevitable commoditization of print.”
WHAT’S THE BIGGER PICTURE?
Although speculation is certainly a bit premature, some consolidation is inevitable. According to Crain’s August 2013 article, since taking charge in August 2007, Quinlan has shut 27 plants and eliminated 14,000 employees.
“Donnelley’s and Consolidated’s customers are expected to receive announcements of plant closings and a loss of service as they have known it,” said Sid Chadwick, Principal of Chadwick Consulting. “Even if a Donnelley or Consolidated plant isn’t closed, the pall of ‘who’s next?’ will hang over them.”
Cheers greeted the Donnelley/CGX news when Chadwick shared the announcement at the SGIA show in Orlando. Chadwick, who was leading a peer group discussion at SGIA, said that other printers sense opportunities to woo some customers away from CGX. Bob Whitton, principal of the Arellton Group, concurs. “The truly independent ‘survivors’ could pick up some business if buyers say, ‘I choose not to play in that ultra-large sandbox.’”
CULTURE SHOCK AHEAD?
CGX Chairman and CEO Joe R. Davis is among the graphic arts industry’s most respected executives. For almost three decades, he’s headed a company known for its skill in absorbing other companies. But with Donnelley acquiring CGX, the shoe is on the other foot. Will it fit? Only time will tell.