All my calls are screened—people wanting to buy us,” quipped a busy executive at a Midwest printing company when PW finally caught up with him. Perhaps he wasn’t joking, given the events in the printing business over the past year. Two major trends, consolidation and the rapidly rising cost of paper, were on the minds of most of the printing industry players—small, medium, and large—that PW spoke with in reviewing the current state of the business.
The landscape has changed dramatically since PW’s last survey of printing companies just over a year ago. The demise of 125-year-old Edwards Brothers Malloy in June was shocking to all, including its competitors. Created in 2012 by the merger of Edwards Brothers with Malloy, EBM doubled its digital capacity but found that because the college market did not deliver as hoped, digital sales remained flat. Annual revenues eroded from an estimated $115 million at the time of the merger to about $95 million when EBM, then the industry’s fifth-largest printer, closed its doors last month.
Some competitors are already benefiting from EBM’s closing. Several executives among those interviewed say they had been approached by EBM’s customers, who are struggling to get their jobs done. In addition, many EBM employees were quickly snapped up, since finding professionals in the printing field is among the industry’s biggest challenges.
Edwards was not alone among the larger players to experience financial troubles. Based in Stamford, Conn., Cenveo, the country’s third-largest printer of various products, including books, filed for bankruptcy in February. By last month, the company had forged a reorganization plan to cut its debt from $1.1 billion to $400 million. Major stakeholders supported the plan, and it appears Cenveo is on track to exit bankruptcy later this summer.
Consolidation in the business gathered speed in the past year and among the more significant purchases was the CJK Group’s acquisition of 150-year-old Webcrafters, a leading printer for the educational and catalogue markets. Other CJK holdings include Bang Printing, Hess Print Solutions, Sentinel Printing, Sheridan, and Victor Graphics.
The large companies are expected to continue to get bigger. Several independent companies report being approached to sell, though none named their would-be buyers. And there are without a doubt some small companies that would be happy to be acquired. One interviewee suggested that owners of the surfeit of small $15 million–$20 million companies started in the 1970s might be willing to sell out and retire. Among the reasons cited for the tightening in the printing industry is overcapacity, due primarily to the 2007–2009 recession in combination with digital substitution.
The industry also received a serious jolt in the past six months from paper shortages, which have led to price hikes that could pummel smaller players. With limited supplies of paper, companies with deep pockets are likely to be given preference, one executive speculated. Because of the shortage of pulp, there have already been two cost hikes this year, and one more is expected. In addition, tariffs on paper produced in Canada and environmental concerns in China reduced the amount of imports from those sources. One midsize printer says that, due to shortages, when a larger order comes in, the company occasionally must split the order into more than one run to wait for paper to become available.
Printers are feeling the pinch of higher paper prices, and eventually their customers will, too, since most of those interviewed say they have no choice but to implement price increases. Thomson Shore president Kevin Spall notes that printers have no choice but to pass along price increases to customers. “The years of not passing along increases in our market are gone,” he says. “There is not enough margin to take a 5% hit on material—any company that’s doing that is doing a disservice to the industry.” Noting that, in the past, printers were not inclined to pass on increases, Spall adds, “There is no economic way to avoid that, especially when you get more increases through the years. It just has to be dealt with.”
Bookmasters, which is owned by Follett, recently installed a Cannon ink-jet printer, and president Ken Fultz says the company has almost doubled its business. He also says Bookmasters, which had shared some work with EBM, picked up some additional business in the wake of that company’s closure.
As with all the players interviewed, Fultz is aware of the paper situation. Demand and supply have pushed up the price, he notes, since several paper machines were taken offline in the past 18 months, taking capacity out of the market.
Gasch Printing is exclusively digital and focuses on shorter runs, many of which are for independent authors. Because of the swift closing of EBM, president Jeremy Hess says he got a lot of “frantic” calls from EBM’s customers. “We saw a lot of cases where people were stuck with work already going through the shop when everything just stopped,” he notes.
Gasch invested in a new Cannon 300 ink-jet printer in April and installed a new color cutsheet, which has increased the company’s color capacity tenfold, Hess claims. He adds that Gasch has seen an uptick in business since the installation. “We can now compete in areas we never could before—higher quantities, higher volume, increased operational savings.”
Kelly Gallagher, v-p of content acquisition of Ingram Content Group, says unit sales of print books are still steadily increasing. “While the demand for e-books has slowed, we do anticipate the continued growth of print books, especially as the development of self-publishing has opened the market to more content producers,” he notes. Gallagher adds that in light of EBM’s closure, Ingram has worked with its impacted customers to assist with their immediate and long-term printing needs. “We will continue to designate resources to help publishers meet marketplace demand for their books.”
Self-publishing is a significant part of ICG’s growth; it launched Ingram Spark as its small press and indie author platform five years ago. Since the launch of that business, Gallagher says the segment has seen double-digit grow year on year.
Both traditional publishers and self-publishers are using Ingram’s Global Connect print channel network, through which they can make content available globally through regional print-on-demand and retail distribution facilities that have partnered with Ingram. “Publishers can get their content closer to consumers and significantly reduce delivery times to customers the world over,” Gallagher notes. Ingram has partnerships with companies in China, Germany, India, Italy, Poland, Russia, South Korea, and Spain.
Revenue at the nation’s largest printer, LSC Communications, rose 13.2% in the first quarter of 2018 from the first quarter of 2017. The overall increase was due to a host of 2017 acquisitions, mainly from outside of the book business. But book sales increased 4.2% in the quarter, to $249 million, due to higher volume in trade and education books and digital services, as well as a $2 million increase in paper sales, partially offset by lower volume from religious publishers.
Following the spate of acquisitions in 2017, LSC has been relatively quiet in 2018, with the only recent acquisition being TriLiteral, a company specializing in distributing books published by university and academic publishers. However, David McCree, president of LSC’s books and directory division, says, “LSC is always keeping an eye out on the M&A front. LSC manages paper for numerous customers across many markets. This gives us strength and flexibility as the paper markets change over time.” Regarding EBM’s closing, McCree says LSC has taken on a number of its former clients.
McNaughton & Gunn, based in Saline, Mich., describes itself as a women-owned company. Julie McFarland and her two sisters are the owners, although only McFarland, who is president, is active in the business. McNaughton concentrates on short-to-medium runs, ranging from as few as 25 copies to 100,000, with most of its clients being midsize publishers. Most of M&G’s current sales are in offset, with digital currently at about 7%.
Like many players, McFarland says she is often approached by potential buyers but wants to remain private. Still, she says she sees further consolidation as a given. “More is coming,” she says. “There are too many printers out there for the amount of printing that is done in the book industry.”
McFarland admits paper shortages and consequent price hikes are a challenge but says the company, because of longtime relationships with paper vendors, is working through it. The speed of changing technology relating to equipment is also an issue. “It’s constant—trying to keep up and make the right decisions in terms of what will be successful for us and our customers,” she notes.
Nick Lewis, president and cofounder (with his wife, Kathleen Lewis) of Publishers’ Graphics in Carol Stream, Ill., has been in business 21 years and still considers himself the new kid on the block. Although he says he frequently gets calls from potential buyers, Lewis has no interest in selling, but he has quietly made purchases of three printers that he would only describe as over 100 years old. “I tend to go for older, better companies,” he says. “I’m just trying to be very quiet about it and take care of my customers—not make a big deal out of it,” he adds. PubGraphics’s main concentration is on digital, and the company added a color ink-jet printer about a year ago.
Lewis says that although PubGraphics is reluctant to pass along the rising cost of paper to its customers any sooner than necessary, it is likely to happen eventually. Lewis takes a modest approach to his business: “We know what we do, but we don’t know if we do it as well as we could yet. We never rest on our laurels.” He adds that he has three mantras he lives by: creating his own destiny, having the will to compete every day, and, as is written on signs posted all over the company’s offices, never to get complaisant.
“The closures and consolidation are healthy for rightsizing the market with the demand,” says Thomson Shore’s Spall. “I absolutely expect more mergers and closures for the rest of this year.”
EBM’s closure solved one of his TS’s biggest challenges: finding skilled staff. “We picked up some really awesome talented people who had been in the industry for 10–25 years,” Spall says, noting that, so far, TS has brought 35 former EBM employees on board and is planning to hire more.
From a client standpoint, Spall claims his company has had hundreds of inquires looking for a new printer in the weeks since EBM closed and is already seeing a significant uptick in volume. In addition, following EBM’s closure, Spall forged an alliance with U.K.-based printer CPI, gaining a large slice of EBM’s digital printing. “It’s a global printing platform where we can send work to CPI, and they can send work to us.”
Spall says TS is not planning to reduce offset in favor of digital. He is still a holdout on ink-jet, since he is not fully satisfied with the quality of digital.
Distribution is the fastest-growing segment of TS’s business. It more than doubled last year over 2016, and it continues to grow exponentially. And Spall declares his print business “very healthy,” growing 11% in the first half of 2018 over the same period in 2017.
According to Sheridan president Paul Bozuwa, the root of the industry’s problems is overcapacity. “My perception is that it seems to have a lot to do with the fact that the companies that are doing well are those with strong balance sheets, and those that used discipline and due diligence in their investment decisions,” he says.
In addition, the constant evolution of recent technologies has brought pressures as printers have had to invest in new equipment. “Against that backdrop, the catalyst is the paper market,” Bozuwa notes. “So those who are in a somewhat weak position when the paper mills have only so much paper—who are they going to give it to? Those who can pay their bills.” Good guardians of their balance sheets are also well positioned to make acquisitions.
Sheridan was acquired by CJK Group just over a year ago, and Bozuwa says he believes consolidation is necessary for the printing industry as it adjusts to a new level of demand.
As for being owned by CJK after being independent for many years, Bozuwa says, “It’s been a terrific transition. It’s been very good being acquired by a company that understands our business.” He notes that “CJK is an ambitious organization and it tends to continue to grow.”
Chris Kurtzman, CEO of CJK Group, confirmed that statement. Just back from Europe—where he visited Amsterdam-based Elsevier, a customer—he spoke about the advantages to smaller companies within organizations like CJK, citing synergy and purchasing power and the ability to offer more services. One of the advantages of being a large player is the ability handle a wide range of orders. “We are still going to have bestsellers and still going to have short runs,” he says.
Kurtzman is confident book printing will be around for the foreseeable future, and CJK is prepared to expand its share of the market. Asked if there is a significant buy in CJK’s near future, Kurtzman responds, “We are interested in companies that have good reputations and have been around for a long time and that are known for good customer service—companies that advance services that we currently don’t have.”