Equity is a broad church - Letter from the Publisher – Patrick Howard

In recent weeks the industry has been focused on the public travails of Blue Star as it reorganises its finances in order to stay afloat. The sacrifices asked of the holders of $105 million in bonds were stringent, to say the least. Their agreement was crucial to the continuing operation of the company and despite calls for a principled stand from some bondholders, economic reality won the day.

Poring over the result led me to wonder if it is not time we all got passed labelling private equity as a peculiar form of investing. On some level, since the demise of Government Printers, all printing equity is private. We are the ultimate private equity industry with the vast majority of companies owner operated.

What has changed in recent times is the entry of large funds to buy up and consolidate lots of printing companies with the aim of launching as public stock companies. However attractive that may have appeared in the heady days of easy credit, there is little appetite now in the market for such risky IPOs. Champ, which now owns Blue Star, is having to tackle the challenges of running a printing company, one moreover with a mountain of debt and a wide geographical spread. Gresham, which owns GEON, has to do the same. (Opus is slightly different having with a restrained appetite for debt, but nonetheless it also has an innovative business plan that ultimately involves a share market play.) Good luck to them.

If they do succeed in convincing the investing public to buy into their strategy the face of the industry will certainly change, but not by that much. We already have publicly traded companies, such as PM and others that move in and out, such as CPI, which was taken private by its new owners. There is IPMG, the second largest printing company in the region, which is held tightly by the Hannan family. But no matter who owns the shares and the bonds in the large companies, or the invested stakes in the privately held entities, all the equity is private, there is no tax-payer funded government money involved here.

Which makes the current demonization of the owners of Blue Star and GEON singularly inappropriate. Many appear to think these companies are bad for the industry. The vitriol is impressive, much of it personal and a lot of it wildly inaccurate.

Now that the latest round of refinancing is over, everyone including management and the competition should calm down and get on with the business of transiting the printing industry into the new communications age. Yes, there have been some fairly controversial decisions, some of them mind-boggling wrong, many with painful consequences in terms of employment and destroyed equity. Some printing company owners have exited the industry with payouts beyond their dreams; others have had to deal with the hangover of price-cutting and a drive for market share.

But the market will eventually decide who will win and who will lose. It is the same for the largest investor and bank supported companies as it is for the average printer. Well-run companies survive and thrive; others go to the wall, no matter how large they are. The main downside from the pain the banks are suffering in dealing with the struggling large companies is the reputation they conceive of the industry as a whole. If the Bank of New Zealand is taking a hit from Blue Star and the RBS is getting it in the neck from GEON, their experience will colour others to be more cautious when assessing requests from printers.

But it serves no one to wish for the failure of these printing companies. Apart from the dislocation of workers and the damage to the industry’s reputation as a worthwhile sector in which to invest, the loss of money by suppliers in bad debts weakens the infrastructure of the industry.

There is a great shake out underway in the printing and graphic arts industry. Technological forces are turning our industry upside down. Anyone who thinks there is a short cut to creating a well-managed and profitable printing company is delusional. The same goes for those who think the industry would be better off if some of our largest companies were to fail. We all have a stake in the well being of the printing industry.

That’s our shared private equity.