The Oct. 31 announcement that printer R.R. Donnelley & Sons had agreed to acquire competitor Banta Corp. had some industry watchers unsure whether to view the news as a Halloween trick or treat.
After all, the $8.43 billion R.R. Donnelley was already the largest printer in North America. Considering that Donnelly and the $1.54 million Banta are key players in the catalog-printing sector, it would appear that the deal would leave mailers fewer choices for getting their books printed.
During a Nov. 1 conference call, Donnelley CEO Mark Angelson said: “Banta is an exceptional fit with R.R. Donnelley. This combination will create immediate cross-selling opportunities with our blue-chip customers as well as offer substantial synergies in our procurement, manufacturing, and services operations.” Like Donnelley, Banta has operations in Europe and Asia as well as in the U.S. Some observers believe that Banta will create opportunities for additional scale in locations where Donnelley is already present.
The merger, says Banta spokesperson Mark Fleming, will enable Chicago-based Donnelley to expand the range of products and services it offers customers. “Donnelley is more in the long-run printing solutions, while Banta does more short and medium runs,” he notes.
The deal, expected to close in the first quarter of 2007, is valued at about $1.3 billion, nearly 19% over Banta’s Oct. 31 closing share price on the New York Stock Exchange of $44.28. During the conference call, Angelson said he sees at least $75 million in savings following the merger. That takes into account the $35 million in efficiencies that Menasha, WI-based Banta announced in September, which include closing five printing plants and eliminating 500 jobs. As for the remaining $40 million in savings, Angelson declined to offer specifics but said they could come through more efficient procurement as well as consolidating operational redundancies.
Michael Wade, director of sales and marketing at Deerfield, IL-based distributor Wade Paper Corp., believes the deal will benefit customers if Donnelley can indeed create money-saving efficiencies and then pass the savings on to its customers. But, he warns, “as with any consolidation/merger, they could lose customers if the transition is not executed smoothly,” although he would not comment further on what could go wrong.
For the most part, however, catalogers and printing and paper industry executives are looking at the positives of the deal.
Mailers weigh in
Some catalogers may worry that the loss of a major supplier could lead to higher prices across the sector. But the resulting efficiencies could possibly lead to lower printing prices, says John Maine, vice president of the Bedford, MA-based forest industry research group RISI.
“To the extent that the merger might improve efficiency and lower print production costs, it could benefit the magazine and catalog industry,” Maine says. “Synergies and efficiency gains with mergers can lead to both improved profitability for the printer as well as reduced cost for the publisher, as long as market shares don’t get so high as to impede competition.”
Many catalogers are speculating on the potential for efficiencies on the part of Donnelley. William McCarthy, CEO of the Southwest Indian Foundation, a Gallup, NM-based nonprofit organization that supports Native Americans through catalogs, a Website, a gift shop, and donations, is one of them. He has dealt with both Banta and Donnelley over the years. “I’ve used them simultaneously. Both have good workforces, good companies, a lot of good people,” he says.
As for the potential ramifications of the deal on catalogers and printers alike, “so much depends on how R.R. Donnelley handles the acquisition,” McCarthy says, echoing Wade. “Any time you have this type of acquisition, you’re going to have some cleansing because some work sectors won’t need to be duplicated.”
The acquisition, says Michael Baum, president of Madison, WI-based The Guild, a purveyor of artworks and artisan decor and jewelry, is “a reflection of the reality that the print business is very competitive and margins are being squeezed.” Donnelley is “very good” at looking for efficiencies, “but it’s unlikely to affect production costs much.” But if the additional capacity that Donnelley will gain enables the printer to do more imaginative things with comailing and other tactics that can help mailers hold postage costs down, “that could be a plus,” Baum adds.
Simon Nynens, CEO of Shrewsbury, NJ-based Wayside Technology Group, a distributor of software for engineers and other computer professionals, says the acquisition appears to be a “good fit for a market leader like R.R. Donnelley & Sons.”
Like Southwest Indian Foundation, Wayside (formerly Programmer’s Paradise) has worked with both Donnelley and Banta in the past. “Banta seems to be further ahead in technology, and Donnelly bought that technology and know-how instead of building the technology,” Nynens says.
Banta “does not have scale to really benefit from the investment, so a market leader buys them and integrates that offering,” he continues. “Sort of like Microsoft buying all these small companies to integrate into their offerings.”
For Nynens, “the real question is, how many of their customers are waiting for this technology, are not using it from someone else yet, and will either upgrade or switch to Donnelly?”
As a direct marketing customer in the technology sector, “we see this as a logical next step and as a possible catalyst for other competitors of Donnelley to step up their technology innovation,” Nynens says. “That is always good for customers, so yes, we see this as a positive.”
Steve Sanfelippo, vice president of commercial catalog sales for Waterloo, WI-based printing company Perry Judd’s, says most of the customers he’s dealt with in the past 22 years believe that by having a number of viable catalog sources in the printing industry, “competition breeds innovation and ideas.” Conversely, “the more homogenized the business becomes, there become fewer tracks of thinking. As a buyer you have fewer choices, and that is a concern as the industry further consolidates.”
Sanfelippo says many people within the industry are taking a wait-and-see approach. Printing is “such a competitive business that is so relationship- and service-oriented,” he says. “Customers are very tuned in to perceived changes. Banta has done a very good job in being innovative with customer-specific solutions. Now that Donnelley has access to those resources, niche-oriented solutions might be applicable to a larger customer platform.”
In addition to traditional commercial printing, Donnelley’s services include document-based business process outsourcing; print fulfillment; logistics; contact centers; print management; online services; digital photography; color services; and content and database management to customers in the direct marketing, publishing, healthcare, advertising, retail, technology, financial services, and many other industries.
Meanwhile, Banta prides itself in providing a combination of printing, binding, and digital imaging solutions to publishers and direct marketers. Banta focuses on five segments: books, special-interest magazines, catalogs, direct marketing, and literature management. The company’s global supply-chain management business provides outsourcing capabilities for materials sourcing, product configuration, customized kitting, order fulfillment, and global distribution.
Whether catalogers are delighted or dubious about the recent merger, most experts agree that consolidation in the printing industry is far from over.
In fact, if R.R. Donnelley & Sons had not bought Banta Corp., another printer may well have. Stamford, CT-based Cenveo, which makes envelopes and provides digital printing services, had bid to acquire Banta for $1.21 billion but withdrew after Donnelley’s offer.
“One thing is for sure,” says David Goldschmidt, vice president of sales for Newport, CA-based paper brokerage Strategic Paper Group. “We can certainly expect further consolidation in both the printing and paper industries over the next couple of years.”
|Other recent printer deals|
Chicago-based R.R. Donnelley & Sons acquired the financial printing business of Canadian Bank Note Co., including facilities in Toronto and Montreal. Terms of the all cash-deal were not disclosed. Canadian Bank Note had posted annual sales in 2004 of $115 million, before it went private.
Sussex, WI-based printer Quad/Graphics purchased Craftsman Press West, a Reno, NV-based privately held commercial printer, for an undisclosed amount. The acquisition expands Quad’s geographic capabilities to the West Coast, giving it a competitive position in every region of the country. Craftsman Press West is a web-offset commercial printer specializing in regionally distributed magazines, catalogs, and retail inserts.
Quad/Graphics purchased a majority interest in Openfirst, a Milwaukee -based direct mail communications provider. Openfirst specializes in processing complex data files for expedited mail-piece production. The 10-year-old company employs about 400 workers and expected sales of $40 million for 2006.
R.R. Donnelley acquired New York-based business process outsourcing (BPO) provider OfficeTiger for an undisclosed amount. It was Donnelley’s second acquisition of a BPO provider in a year, following its acquisition in June 2005 of Astron, a U.K.-based company with resources in Europe, India, and Sri Lanka.