Building an Alliance

Mergers and acquisitions, typically, are used to grow businesses and to provide and/or enhance service and product innovations. Companies also can gain access to new printing technologies or services by merging with a company or acquiring one that uses the desired technology.

The bitter economy that has plagued the United States for the last few years has crippled many companies' capital and has brought many mergers and acquisitions to a halt. Jim Cohen, executive vice president, mergers and acquisitions, at Houston-based Consolidated Graphics, believes that is on the verge of changing. Translation: Good news for businesses that plan to live long and prosper. Bad news for those companies hanging by a financial thread.

"Over the last two years, the printing industry has been hit hard by the recession. Most companies have experienced revenue declines of anywhere from 15 [percent] to 50 percent, and as a result their earnings have been wiped out. In many cases, printing companies have no positive cash flow and are in various degrees of covenant default (if not payment default) on their credit lines. Many have had to restructure their equipment leases as well. Banks were initially slow to pursue their remedies because they were busy licking their own wounds, [they were] dealing with bigger problems and not eager to take any additional write-offs.

"That is changing and banks are beginning to focus more on their printing industry credits, so I expect even more company failures to occur over the next 18 months as creditors tighten the screws on their poor performers. This is bad news for printers that are in distress but good news for the survivors as excess capacity (and below cost pricing) will be wrung out of the system. What this means for the mergers and acquisitions landscape is that there will be even more opportunities for white knights to rescue distressed companies."