Thursday, November 13, 2003

Printing industry concentration R.R. Donnelly, the second-largest commercial printer in the United States, announced that it will acquire MooreWallace, another printing company, for $2.8 billion in stock. MooreWallace is itself the result if the 2003 merger of Moore Corporation Limited and Wallace Computer Services. The move will re-establish Donnelly as North America's largest printer, a title it lost in 1999 when Canada-based Quebecor merged printing operations with World Color. The new Donnelly firm will be an $8 billion company. The two companies specialize in different areas of printing, so there is little direct overlap. However, printing is largely an unconsolidated business, and the merged firm will control only about 5% of the printing market. The printing industry has started to decline over the last few years, as mailing fees have gone up and as the Internet has replaced some of the functions of printed material. In addition, pricing pressures combined with ever-tighter deadlines have cut into margins. But concentration is far higher than it was a decade ago. That's partly due to flurry of acquisitions in the late 1990's, as family-owned businesses left the industry while they could; it's also due to a steady series of bankruptcies. Another factor is digital technology, which has brought major savings in speed in labor costs but only to those with money to invest in serious capital equipment. According to the website of Compass Capital, a printing industry consulting firm: During the mid to late 90's, consolidation took the form of hundreds of mergers and acquisitions. The M&A frenzy peaked in 1998 when 189 transactions were completed. The number of deals declined to 149 in 1999 and the past three years have witnessed an even greater decline in M&A activity. Consolidation during the 2000 - 2002 period has taken a different turn with an increase in bankruptcies, liquidations and distressed transactions squeezing capacity out of the various printing markets, especially the large fragmented General Commercial printing segment. According to a study by Frank Romano from the Rochester Institute of Technology, there are now 11 firms with revenues over one billion dollars, and they control around 30% of all the revenue in the business. At the low end of the industry there are about 19,000 sub $1 million dollar printers, the mom and pops. Romano sees the small and mid-range printers as the most vulnerable, and likely to be reduced by 30-40% in the next five years. Donnelly's move reduces by one the number of high-end printers that can bid for substantial corporate work. It's hardly an antitrust worry, but it does show how even the most fragmented industries are gradually moving to oligopoly. 3:45:49 PM

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