It can be used by confident companies looking to expand their power bases, or by weak companies pleading to be bought; it is rife in fragmented but strong markets capitalising on growth opportunities in benign economic conditions, and in declining markets in turbulent times.
Take Microsoft, for example. It has throughout its history consolidated its market share by aggressively acquiring its rivals. Compare that with the current state of the airline industry which, through mergers and acquisitions, is seeking to strengthen as the perfect storm of oil price rises and declining consumer spending threatens the industry.
There is no doubt a movement towards consolidation is underway in print. Last week’s PrintWeek featured two major consolidation stories: RSDB’s move to consolidate European print, and the spectre of Polestar acquiring Wyndeham, raised following confirmation by a source that talks were underway.
At the same time, there is a spate of merger and acquisition activity at the smaller end of the market, as companies look to expand market share and, in many cases, save a rival that has slipped into administration.
What does this tell us about the current consolidation in print? It would be easy to assume that, with all the closures this year, these are simply defensive consolidations from companies looking to achieve a critical mass to survive the anticipated downturn.
However, one market participant, Tangent Communications, would be quick to disagree. Tangent has been on the aggressive acquisition trail since it floated on the Alternative Investment Market in July 2005.
Nicholas Green of Tangent says: Consolidation is a good thing as long as it is about growth and not merely reducing overheads. Our acquisitions have been complementary to our existing business and have successfully boosted turnover.
Indeed, Tangent has seen its turnover double over the past 12 months following the integration of Newcastle-based Ravensworth Digital Services, a business it acquired in March 2007.
Green looks at the current market with optimism: There will be a lot of opportunity over the next six to 12 months for companies looking to consolidate their market positions.
For John Caris, chief executive of RSDB, the European print market has been crying out for consolidation. He says: It is our goal to create a bigger group. It’s the strategy I have talked about for a long time: to create a print platform with a good footprint.
Caris’s road to consolidation has not been a certain route. In December last year, his dreams looked to be in tatters following the rejection of the proposed takeover of Quebecor World’s European division by RSDB’s shareholders.
It subsequently emerged that the shareholders believed that the price was too great in the uncertain economic climate and were concerned about the levels of debt that the target company carried.
The road to consolidation is littered with risk and tough decisions and one can, to some extent, understand RSDB shareholders’ trepidation. Acquisitions incur debt, consolidation requires plant closures which may meet union opposition and heavy costs, and any serious market decline could lead to massive impairment charges and goodwill writedowns.
Caris remains bullish, however, sticking to his core belief. Consolidation in the industry means plants will disappear in the market. It’s necessary to make the industry more healthy.
The attraction of the commercial print market to [RSDB’s private-equity backers] is that it is in consolidation. These are entrepreneurs – they already have a background in investing in consolidating industries. It’s not a growing industry.
Tony Burke, assistant secretary general at Unite, believes that the RSDB deal will put pressure on the UK to consolidate. I believe it means that big print companies in the UK will have to look to merge to meet the Europe-wide consolidation.
We have gone through a tough time. Since 2000 we have lost more than 3,000 companies in the UK printing industry alone – and there is more consolidation on the way.
He urges companies considering such moves to talk to the unions as early as possible to ensure that employees do not lose out unduly as the industry strengthens through consolidation.
There is an old market adage that successful investors buy on fear and sell on greed, and this rings true when considering market consolidation in print. Tougher times for an industry encourage companies to streamline and the strongest will get stronger.
Uncertainty lies at the heart of all consolidation and few would deny these are uncertain times for print. The RSDB/Quebecor World bid is a bold step, and will lead
to a wave of consolidation across Europe. The industry will be stronger as a result, but tough times lie ahead for employees, companies and investors alike.
Read the original article at www.printweek.com.
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