Tuesday, February 23, 2010

I really have to apologize for not posting anything in such a long time. We have been absolutely swamped looking at opportunities in the printing industry. Just completed the acquisition of Modern International Graphics and Modern Logistics in Cleveland, Ohio (see our press release on that). Despite a very challenging economic environment for printers across the country, we are still able to structure transactions that are mutually beneficial. Our balance sheet is as strong as ever so we are actively pursuing acquisitions of all types and sizes. The challenge is finding the right opportunities. The truth is that the next 12 months are still uncertain, and many printers are looking at a very precarious future. My own view is that the printing industry is going to lag in the economic recovery behind almost everyone else except maybe home builders.

The decimation that I have seen in our industry over the last year and a half is staggering. Most printers I've looked at (and I've looked at hundreds) are experiencing revenue declines in the neighborhood of 20-40%, and with this decline comes a lot of red ink as you'd expect. Many printers have no cash flow and negative working capital to boot. These printers will not be around in a year. But surprisingly, they are hanging on longer than you think but that is mostly because their banks don't want to take the write offs yet and frankly don't have enough qualified personnel (i.e., experienced workout and restructuring professionals) to deal with them. So this is good news in the short term for the struggling printer but obviously in the long run this is not sustainable. The bad news for other printers out in the marketplace is that you will continue to find yourself facing ridiculous pricing pressure b/c of the printers that are hemorraging cash. They are doing whatever it takes to keep work in their shops - even if it means a 1% gross margin. We, like many other printers, have to compete with this, and it isn't fun. Fortunately, it is a short term problem.