The commercial print deal of the year was struck in November, when the Australian business of Blue Star was acquired by a partnership of its former management, the Selig brothers, and private equity firm, Wolseley.

The acquisition includes the whole Australian business, comprising Webstar (which produces ProPrint), print manage-ment arm Blue Star IQ and sheetfed. The Australian operation represents about 60% of the group’s turnover, making it roughly a $275 million business. 

The buyout is expected to revitalise the company. Onlookers suggest the change of ownership resolves the three biggest problems faced by Blue Star in recent years: the size of its debt, questionable management and a market perception of instability. Feedback from suppliers has been healthy. Andy Preece, Paperlinx’s executive general manager, Australia, NZ and Asia, said: “As a significant supplier to Blue Star, Spicers is very pleased with the outcome of the sale process in Australia and confident that this will be viewed positively by an overwhelming majority in the industry.”

Debt had been a millstone around Blue Star’s neck. When Champ paid NZ$385 million for the group in 2006, it lumbered the firm with crippling repayments. 

It is unclear what Champ got for Blue Star: the New Zealand sale is ongoing, and neither Geoff Selig nor Wolseley Private Equity would reveal what they paid for Blue Star Australia. But it is likely that Champ took a bath. The upshot is that the new owners won’t face the same burden.

When the Blue Star sale was first announced, it was reported that Champ, and its sales agent, Goldman Sachs, were hoping to net more than $100 million for the trans-Tasman business. For a company generating up to $40 million earnings, some might say that was a steal, if it weren’t for the size of the debt. 

Too expensive

One interested party was TMA Group. Managing director Anthony Karam told ProPrint in October that his company had originally joined the bidding process for Blue Star, but withdrew after Goldman Sachs pushed the asking price too high. Karam would not reveal TMA’s offer, but insiders have suggested it may have been around $60-65 million for the Australian and New Zealand operations.

If, for argument’s sake, you took this number as a fact, it would make sense to assume the Selig-Wolseley offer was higher than TMA’s. That might suggest the Blue Star Australia was bought out for circa $50 million, which would seem like a bargain.

But that is pure guesswork. All that Geoff Selig would reveal about the deal was that it had been “fully funded by the shareholders” and that “there is no external debt on our balance sheet.”

James Todd, co-founder of Wolseley, said the private equity firm “hasn’t introduced any acquisition debt as part of the acquisition structure”.

“We are very enthusiastic supporters of Geoff and Paul but given the difficulty the business has faced over the past few years, we wanted to make sure the settings were right to go forward and into the future.”.

Clearly, Wolseley, like any private equity firm, will expect a generous return in the not-too-distant future. But for now, the sale has created a Blue Star with seasoned man-agement and a far lower debt to service. 

Splitting up the Australian and New Zealand businesses should mean a more focused company. The idea of a trans-Tasman group might’ve seemed appealing in the heady consolidation days before the GFC. Back then, private equity firms like Champ and Geon’s owner, Gresham, thought they could buy up share and monopolise the industry. That strategy backfired: there are too many commercial printers to get the required mass. 

It seems Champ has learned from its mistake. Its latest roll-up strategy is between outdoor operators Ooh Media and Eye. Unlike commercial print, the out-of-home sector is already dominated by a few major players, so a consolidation move there should be more successful.

Speaking of Geon, it has undergone its own financial reshuffle in the past month or two. The $80 million debt its owners, Gresham, owed to Bank of Scotland International, was sold as part of a $350 million package of debts to investment firms KKR and Allegro. Geon chief executive Graham Morgan downplayed the significance of the deal, saying it was “no different to moving our mortgage”. 

The Australian Financial Review reported that KKR and Allegro had paid less than 50c in the dollar for the portfolio. There was some suggestion on the grapevine that this would halve the size of the debt Geon had to service. But other sources have pointed out that coming to this conclusion misses the fundamental nature of these kinds of high-risk investments. The port-folio was labelled “distressed debt”; it is expected that an investor would pay less than the face value, because of the risk of default. It seems unlikely any investment firms would reduce the value of their investment by writing off part of the debt they had just acquired. 

So while Geon is expected to have the same debt to contend with, Blue Star does not. Onlookers would suggest this puts Blue Star at an advantage. 

Sweeping changes

Another advantage of the new-look Blue Star comes from the change of management. Throughout its most difficult period, from the onset of the GFC to the debt restructure, Blue Star was run by Chris Mitchell, a non-printer who had spent a large part of his career at IT company EDS. Mitchell surrounded himself with other outsiders, such as Sasha Dobrovolsky, appointed managing director of Australia in 2009. Meanwhile, some of Blue Star’s longest-serving and most capable managers have crossed over to Geon, including Glen Draper and Kim Lykissas. 

The new management team of Geoff and Paul Selig and Mike Shannon brings a wealth of industry expertise. All three were heavily involved with Blue Star in the past. Geoff and Paul come from a print family: their grandfather, Oscar Selig, set up a local newspaper in Balmain, Sydney; their father, Gordon, spearheaded the firm’s move into commercial printing. The Selig brothers and Mike Shannon had all served in management roles at Blue Star prior to the Champ acquisition. 

The change of ownership is already bearing fruit. One senior Blue Star manager, who asked not be named, told ProPrint: “In the short time since the sale, morale in the business has lifted, customer and supplier feedback has been sensational, and staff are excited about the future.”

The manager said the longer-serving staff “have immense respect for Geoff and his brother, Paul”.

He added that “respect for the managing director has been found wanting in the business at a staff, customer and supplier level for many years, although Phillip [Bower] has done a good job restoring confidence and trust in the last 12 months”.

If Blue Star’s difficulties were threefold – management, debt and market perception – then the Selig-Wolseley deal swiftly resolved the first two. The third issue is also on the mend, according to the unnamed senior manager. He explained how “the negative financial perception of Blue Star in the last 12 months has made it more difficult to secure new business”.

While pointing out that Blue Star had won some majors accounts in the past 12 months, he added that “there were some big tenders during the year that we got down to the last two or three bidders but were not taken any further in the process due to our financial position”.

He is confident this has all changed with the sale. “We are now in a position where we no longer have the debt monkey on our back. We will be putting the head down and going hard on the new business front moving forward knowing that we have a great offer and great people in our business to support our market position.”

But Blue Star still faces many challenges, not least of which is the market price for sheetfed print and the associated low margins. The upshot of the Selig-Wolseley deal is that with a lower debt to service, more of the earnings will go the bottom line, not to pay off the debt. 

One of the industry’s most respected former printers, Bob McMillan, who sold out to Blue Star in 2007, said: “It is going to be very difficult to get the price back up.”

He said Blue Star would need to have a much greater focus on sales and marketing if it had any hope of returning to the glory days. Blue Star and Geon have both been heavily focused on finding efficiencies, using workflow automation to replace staff, but McMillan said that a customer focus was missing. “Nether of those organisations have had a clear focus on sales. McMillan was a sales and marketing organisation. We were printers second.

“What’s important to under-stand is you can’t shrink yourself to prosperity. You can’t keep cutting everything.”

The other question mark around Blue Star is whether the new owners are committed to the entire operation, or just certain parts. There has been speculation that the real target was Webstar, and that the sheetfed operations will be downsized. The Seligs have extensive experience in sheetfed print, so there is no reason to assume they won’t try to make a success of the entire business. But only time will tell. 

In the meantime, Selig has said: “Everyone is keeping their job. We will pay the creditors in the normal course. We have bought the legal entity so it is business as usual.”  

Background briefing

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