State of the Industry Acquisitions and Mergers
By DO Staff
Part 1 of 4
The 2011 Digital Output State of the Industry report comes at a time of cautious optimism. Suppliers to the large format digital print market see an uptick in capital investment.
The companies that streamlined efficiencies and/or invested in research and development (R&D) despite the economy have weathered the storm. They are poised to sell equipment, ink, media, and more to an evolving group of print providers.
The print landscape is changed on all fronts. There is continued revision of the market players—from the manufacturers and suppliers to the end users and print providers. Within the last 12 to 18 months, some succumbed to the challenging economic times; others took advantage of the situation and purchased supporting and competitive companies.
Several companies decided to focus their efforts in other areas and left the market in some form. In 2010, Italian media company Ferrania Technologies phased out its U.S. operations. Xerox Corporation announced it will discontinue taking orders for wide format products in the U.S. and Canada in 2011. Shortly after, Gerber Scientific Products, Inc. exited the flatbed printer business.
A few vendors changed hands and names. 3A Composites Holding AG, owned by Schweiter Technologies, is the new name for Alcan Composites. With the sale of the Bienfang fine art paper line, Elmer’s renamed its commercial foamboard portfolio EnCore Products, Inc.
The U.S. is attracting overseas manufacturers. Bordeaux Digital Print Ink Ltd. began manufacturing in the U.S. this year and Teckwin International set up a demonstration and service center in Las Vegas, NV featuring its grand format solvent, UV flatbed, and roll-to-roll printers; and CNC router/cutters.
Meanwhile, other product manufacturers added their portfolio and competitive edge. Agfa Graphics completed acquisition of Gandi Innovations Holdings LLC North American operations then acquired supplier Pitman in August 2010.
In media, FLEXcon Company, Inc. acquired Arlon, Inc., which is renamed Arlon Graphics, LLC. Transilwrap Company, Inc. acquired Interfilm Holdings, a distributor and converter of flexible films. The manufacturer and converter aims to expand its current films business and new markets going forward.
On the software side, EFI took over Streamline Development, LLC, a provider of PrintStream enterprise relationship management and management information systems software. Quark Inc. acquired Gluon and its HyperPublishing System, and Screen USA merged with S. Ten Nines California, LLC, a sister company that engineers software that drives the company’s print and prepress equipment.
Fresh and Bygone Channels
Distribution channels are altered as well. “New distribution agreements allow companies to gain more access to more customers,” points out Mitch Bode, VP, wide format inkjet and specialty ink systems, graphics systems division, Fujifilm North America Corporation. He also notes, “Fujifilm acquired several dealers and distributors years ago. We now see even more forward integration where manufacturers are acquiring distribution channels or developing channel partners to reach more customers.”
In late 2010, Canon U.S.A., Inc. announced Océ North America Wide Format Printing Systems division as a dealer of its imagePROGRAF large format printers.
Sign, screen, and digital imaging supplier Grimco, Inc. acquired traffic sign company Signs and Blanks in 2010 and Northwest Sign Supply in 2011.
Finally, wide format product distributor Tekgraf closed in 2010.
According to Ryan Buy, director of sales, Teckwin, inkjet equipment was commoditized by many distributors. He attributes this to distribution consolidation. “It will actually reverse, as each equipment manufacturer has less brand identification,” he predicts.
End Users Arise
There is evidence of select print providers folding, while others succeed and grow. Digital print, document management, and architectural graphics firm Printscape Imaging & Graphics of Pittsburgh, PA, broadened its offerings by purchasing the neighboring sign and vehicle graphics shop Visual Impact Graphics.
Like-minded shops converge into stronger single units. These print service providers (PSPs) with multiple, cross-country production sites reap the rewards of national retail campaigns and saving on shipping costs. Two experienced NV shops are now one, with Signs Las Vegas’ purchase of Allegra Las Vegas. Graphic Packaging International, Inc. acquired Sierra Pacific Packaging, Inc. Shutterfly, Inc. enhanced its online photo printing business with the purchase and integration of personalized card and stationery company Tiny Prints, Inc.
“PSPs think it might be a good time to sell. During 2008 and 2009, it was obviously not a good time. Now, with a better economy, it is a good opportunity,” states Steve Bennett, VP, sign and display business, EskoArtwork.
He says PSP consolidation is already active in several segments such as billboard production and corrugated point of purchase (POP). “These businesses are larger, produce commodity items, and are turnaround time and price based. However, the higher value, multi-substrate shops are less consolidated. They tend to make more complicated projects and the business may be more relationship based,” he says.
Sign and graphics businesses simultaneously experience an increase in customer advertising budgets and price pressure with tighter lead times. They must be efficient in production and management, and they offer new services and applications. “While some businesses are consolidating for economies of scale, others are diversifying to compete in additional market spaces. In other cases, enabled by improved print technology, design software, and emarketing, some companies are successfully focusing their core business on market-specific opportunities or applications,” suggests Jennifer Kigin, marketing operations manager, 3M Commercial Graphics.
End users are finding work where they could not compete in the past. “Rather than consolidation there is more diversification as printers in what were once considered secondary markets are finding they can compete with some of the larger national print suppliers,” shares Jeff Sanders, digital sales manager, Pacific Coast Fabrics, Inc.
In addition, Sanders sees more PSP entries. “Companies are entering into our industry with no previous printing experience and the goal of creating a specific product for a very narrow or niche market. Rather than producing general purpose flags and banners, these companies are embracing digital technology to create products as diverse as horseracing silks, custom graphics on skis, and iPad covers,” he explains.
There is also a trend in the convergence of commercial, offset, and screenprinting shops making a leap into wide format digital print. “This is why so many shops need G7 standardization and JDF automation; something ONYX Graphics, Inc. is taking very seriously,” explains Dean Derhak, marketing director, ONYX.
Adapting to New Conditions
Market players adapt to numerous stresses, including a weak economy; heightened fuel, shipping, and consumable costs; competitive equipment and print bid prices; more environmental regulations; and alternate, disruptive technologies such as electronic signage. As they adapt, there are additional mergers and acquisitions and a new crop of advances as leaders join forces with new innovators.
Smaller entrepreneurs with unique ideas are often scooped up by larger, established companies. For some the purchase is stifling, while others are able to thrive and innovate. “The group of entrepreneurs at INX Digital are lucky as Sakata INX allowed us to continue with our entrepreneurial spirit. I believe this philosophy is why I am still with the company and we are thriving,” comments Ken Kisner, president, INX Digital International Co.
From the manufacturer to the dealer and the end user, a merge of businesses, products, and culture is not an easy undertaking. Some take new acquisitions and use them to their benefit, while some miss the boat. “I’ve seen many companies buy up what they think is a good deal or a competitor and it turns out that they don’t know what to do with that information or company. They don’t manage or merge properly,” points out Brian Phipps, GM, Mutoh America, Inc.
Acquisition is challenging. “It’s not automatic. It takes excellent execution, effort, and communication to perform an acquisition successfully,” says Kisner, noting that there companies such as Fujifilm, Hewlett-Packard (HP), and Sakata INX Group are seeing the fruits of their hard work with several successful acquisitions.
Some may ask whether recent consolidation is good or bad for the industry. If it leads to innovation and growth, then it is positive. “If the industry doesn’t move forward, that means our customers can’t grow their businesses,” notes Chris Howard, VP sales and marketing, Durst Image Technology US LLC, adding, “our common pool of customers are smart people. They will find avenues for revenue and they might find those avenues outside of print, which would be bad for everyone.”
Put Fear Aside
Consolidation is a natural and, many times, beneficial part of all industries. Its presence in large format print is drawing in new end users and applications. “As the Internet flattens out access to information our markets will start to consolidate. There are blurry lines between the sign and screen markets, and traditional retail sign, packaging, and label markets as well. Those used to be well contained environments and now a lot of commercial print has ties to large format,” highlights Rick Scrimger, VP/GM, Roland DGA Corporation.
Changes lead to fewer leaders that have the financing for R&D and proven stability. “Consolidation changed the critical mass of companies that serve this market. Now, there are a lot of strong companies to back up customers. That brings a certain stability to the market, it broadens the appeal, and grows the total market opportunity,” shares Scott Schinlever, SVP/GM, inkjet solutions, EFI.
Where some companies freeze R&D or pull out altogether, others do the opposite. Fewer, more powerful vendors— most predict—will not stymie innovation in the marketplace. Innovation continues. “If there is still a competitor, you have to try and innovate. If you are honest with yourself and serious about being a company, you want to continue to deliver value to your customers,” states Scrimger.
“Investments in services and extended R&D dollars ensure we are still delivering the best of the best technologies to help our customers grow business. We introduced new products in hardware, inks, software, and solutions. More than that, we help our customers financially, giving them credit and financing—this was incredibly important,” shares Yariv Avisar, VP/GM, large format printing industrial solutions, imaging and printing group, HP.
Avisar says that HP brought maturity and financial strength into a market that was fragmented with too many small companies. “The crisis demonstrated that if HP was not part of this market, and if it was ColorSpan standing alone, Nur standing alone, Scitex standing alone; VUTEk without EFI. There would be many more casualties and a loss of innovation and development in the market,” he notes. “The beauty of what HP has done with its acquisitions in the graphics space was they kept the energy and the passion of the customer-centric organization of Scitex and Indigo, while using the resources of HP and the ability to scale this to business.”
Large format printers have room for maturation—mostly driven by printhead and ink technology. “At some point you get beyond the feeds and speeds of the printer—and we’re not there yet. In five to seven years we will approach a little more maturity and at that point the workflow becomes more important. People want more of a solution and a partnership with a company that is going to be around to support it. That all fits together,” adds Schinlever.
Avisar agrees that the consolidation occurs because customers look for an overall, trusted solution and a long-term partnership. “In the past they bought the printer, now they buy just the printer and they want to see the complete workflow. If they pay a dollar, they want to understand that this dollar will bring them ten,” he cites.
Industry consolidation is ideal for the PSP ready to invest in technology. “Acquisitions and consolidations are simplifying buyers’ purchasing decisions. Consolidation provides many with a one stop shop,” explains Derhak.
He is confident that PSPs are ready to buy. “There is pent up demand because many end users resisted upgrading products until the slower economy passed. ONYX invested in R&D in the downturn and this helped to pick up its market share,” says Derhak.
The consolidation among manufacturers, distributors, and PSPs may not be over. “As margins deteriorate with commoditization of products and increased competition from Asia, the industry must further consolidate to drive efficiency and price elasticity,” states Phil LaFata, VP of marketing and international sales, Arlon Graphics, LLC.
A New Landscape
The 2011 Digital Output State of the Industry report reveals new faces and renewed confidence. Leaders are emerging that have invested dollars behind new innovations in R&D and acquisitions. “Those who are proactive are going to gain opportunity and momentum and be the leaders of what will be the future of this industry,” declares Rick Moore, director of marketing, MACtac Graphic Products.
Trailblazers are ready to come to market with mature products and complete, end-to-end solutions. They are banking on an evolving group of end users and extended credit access to increase sales.
Upcoming online installments of the 2011 State of the Industry series feature new technology introductions and standout projects of the year. Read our full report, with additional anecdotes on the large format print industry from market leaders, in the August 2011 issue of Digital Output.
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Jul2011, Digital Output DOSOI0711