The long-running saga of Geon, once the biggest offset sheetfed printer in the region, is nearing its end. As the dust starts to settle after a tumultuous couple of months, Simon Enticknap looks back at the genesis of this ambitious project to reshape the industry and examines the fall-out from its collapse.
The end, when it came, was quick. After eight years under private equity management, during which time many observers wondered how long it could survive, the final Geon death throes lasted just a matter of weeks.
The company’s private equity backers, Gresham, finally walked away at the beginning of February when it handed control of the company over to KKR/Allegro private equity investors which had earlier acquired $80 million of Geon debt from Lloyds International. At first there was talk of restructuring and turning the business around but after less than a fortnight, the new owners had called in the receivers. Almost immediately, the dismantling of the Geon group began in earnest.
First to go was the Christchurch-based Kiwi Labels business, which went to Blue Star NZ, itself recently returned from private equity ownership into the arms of former owner, Tom Sturgess. Then Geon’s NSW and Victorian operations went to Blue Star Australia under Geoff Selig who acquired the former Geon Banksmeadow and Parramatta sites in NSW, as well as its Mt. Waverley site in Victoria. These sites were immediately earmarked for closure with a “meaningful number” of Geon employees being offered positions at Blue Star.
Tom Sturgess came back for more 10 days later when Blue Star Group NZ picked up the remaining Geon assets in New Zealand with 50 former Geon workers being offered positions at Blue Star; another 185 former staff missed out.
By mid-March, Geon Perth was looking to go it alone by means of a management buy-out and then, a few days later, Geon’s Tasmanian assets reverted to their former identity, Mercury Walch, under the ownership of the Todisco family. That just left the Queensland operations which failed to find a buyer and were closed down, the Eagle Farm site quickly being listed for sale or lease.
And that was that. Before you knew it, the waters had closed over Geon’s head and the region’s largest sheetfed printer was no more. All that remains is for those staff and suppliers left behind as the ship went down to see what they can salvage from the wreckage.
The industry has seen some hard times in recent years – great companies gone, some of whom it was almost unfathomable to believe could go out of business – but perhaps nothing matches the trauma of the past couple of months.
Pain and sorrow
When news of the receivership first broke, the response from the industry was swift and unrelenting. No story on the Print21 website has ever generated so much impassioned comment. The level of industry-wide anger was palpable, mixed with a certain degree of schadenfreude and genuine sympathy for the many Geon workers facing an uncertain future.
“Poor staff – it’s time these PE types go gamble with their own money. Total grubs! They burn lives, then just happily move on to the next job leaving destruction in their wake. They deserve punishment,” responded ‘Ink Farmer’.
“Heart goes out to the employees and suppliers. This is a private equity chess move, in order to eliminate KKR’s obligations,” said ‘Rotten at the start’.
“It was those in charge that are responsible and they should be made to pay… how many families are left pondering how they will pay next week’s mortgage or feed their kids,” added Loz.
Others responded by reflecting on the changes wrought on the industry over the past decade. Theo Pettaras at Digitalpress, for example, paid tribute to the legacy of Geon’s predecessors:
“Let’s at least take this opportunity to remember that Geon, previously known as Penfold Buscombe, was a printing company with a history in the printing industry dating back to 1865! Vicprint, Concord Corporate Communications, David J File Printers, Inkolour, Mockridge Bulmer, Prestige Plates, RT Kelly, Southport Printing, URI Printing, Pot Still Press and of course Websdale Printing were all well-known, respected printing companies that were included in the group’s portfolio of printing companies.
“Those of us old enough to remember some of these companies would agree that they played a very important role in employing and training tens of thousands of people and making a significant contribution to the craft of printing.”
Much of the criticism voiced was directed at the private equity owners and the management team which was widely perceived as having no understanding of how the print industry works. Special condemnation was reserved for Geon’s managers who jumped ship to positions with new owners while leaving employees to fend for themselves. The resulting sense of betrayal and outrage was white-hot.
And whilst nobody seemed surprised at what had eventuated, many expressed a hope that Geon’s demise would see a return to sane pricing policies in the industry.
“A current printer working in Perth, the prices have to rise because the way things stand at the minute everybody’s getting screwed. Quality at a decent price I reckon…” commented Buster.
The disconnect
Over the six years that Geon was in existence, there was always a strange disconnect between its public and private personae. Publicly, the announcements were all about building a ‘world class’ printing company with ‘sustainable’ manufacturing sites dotted around the country. Even as late in the game as last September, when the company was asking its staff to reduce labour costs, this was presented as part of its “commitment to building a sustainable business model for the future”.
“Our focus is keeping Geon in the strongest position for the future,” said CEO Graham Morgan at the time. “We have reduced our debt significantly, reduced cost from the business across site mergers, reduced management layers, streamlined processes and now we are working with our employees on reducing the cost of labour through flexibility and open dialogue.”
The talk was all about building a business for the ‘long-term’ based on the model of a nationwide, integrated production network. And there’s no doubt, too, that the company did produce some good work over the years, a testament to the skill and dedication of the staff it inherited from the various companies absorbed. It was a consistent winner at print competitions on both sides of the Tasman.
Away from the public utterances though, it was always difficult to see how the company could survive under the burden of so much debt. It didn’t matter how successful it was, how much revenue it generated, how much quality print it produced or new customers it gained, it was never going to emerge from beneath the mountain of imposed debt. Something had to give; either the debt goes or the company does.
For its part, Gresham had shown that while it was capable of producing successful turnarounds in some cases, it was also not afraid to close down businesses if necessary, as it did with boat builder, Riviera, which collapsed in 2009 with debts of over $300 million.
The intervention of the GFC didn’t help. It’s a moot point as to how many of those businesses taken over by Pacific Print Group and then Geon would have survived one of the worst industry downturns in recent history. While they might have fared better, it’s hard to believe there would have been no casualties; plenty of well-known names have gone to the wall over the past few years. In the eyes of many people involved in the company though, the situation at Geon was compounded by bad management decisions and the loss of experienced talent and industry know-how at precisely the moment when it was needed most urgently.
Some viewed this as evidence of the private equity financiers’ inability to understand what was unique and specific to running a printing business, what made it different to managing other manufacturing concerns. There may be some truth in that view but it presupposes that the goals of private equity are the same as most other enterprises, namely to build a ‘sustainable’ business, to earn money from making and selling things. That’s not necessarily the case.
The collapse of Geon is not an indictment of the ‘failure’ of private equity because the business model it holds to is not the same as everybody else’s. Private equity plays by a different set of rules.
The bust out
There’s an episode of the TV series The Sopranos in which Tony Soprano and the gang take over a sporting goods store after the owner gets into debt with them. Not surprisingly, Tony has no intention of becoming a shopkeeper. Over the coming days and weeks, he and his cronies systematically strip the store like locusts, running up huge debts and selling off the stock at less than cost price (sound familiar?) until eventually the credit dries up.
At one point, the exasperated store owner asks Tony what he’s doing, why he is deliberately running down a good business. “This is how a guy like me makes his living,” says Tony, referring to the old fable of the frog and the scorpion. “This is my bread and butter.”
Finally, with the business on the point of collapse, the owner, drunk, desperate and suicidal, asks Tony Soprano how it will to end. “The end?” replies Tony. “It’s planned bankruptcy.”
During the last US presidential election campaign, the Huffington Post made the same analogy between the modus operandi of private equity groups and Tony Soprano in reference to Republican candidate Mitt Romney’s history with private equity mob, Bain Capital. In the US, Bain has a reputation for buying up companies, loading them up with debt to extract higher dividends and then allowing them to go bankrupt. Romney’s attitude was exemplified by his opposition to any government bail-out of the US auto industry, commenting that “these companies need to go through a managed bankruptcy” as if going bankrupt is simply another form of re-branding.
The point is that, for private equity investors, bankruptcy is not necessarily indicative of business failure; it is a strategy for getting rid of debt and cutting costs. At least Tony Soprano was capable of empathising with his victims.
Sitting pretty
In much the same vein, some of the commentary about the collapse of Geon has highlighted how much money has been lost by the private equity backers since Gresham bought out the former Pacific Print Group in 2005 and then upped the ante by buying Promentum for $127 million. How could they have been so misguided?
It is true that Gresham Partners, the holding company behind Gresham Private Equity, did make a loss last year, perhaps the first since it was founded in 1985. It lost just a smidgin over $1 million. That was mainly because its fee income fell to $46 million over the year, down from $55 million the previous year. In fact, over the years while Geon floundered, the fees earned by Gresham Partners remained fairly consistent, reaching $64 million in 2009 in the wake of the GFC.
Not all the fees earned by Gresham Partners come from its private equity operations and it is true that Gresham Private Equity has suffered bigger losses in recent years. For instance, last year, Wesfarmers, the giant conglomerate which owns Coles supermarkets as well as having a 50 per cent stake in Gresham Partners, recorded a loss of $55 million on its investment in Gresham Private Equity Funds due to “downward non-cash revaluations following a difficult year for some of the funds trading businesses”. That followed a $60 million loss on the same funds, also due to “downward non-cash revaluations” etc, in 2011, as well as another $57 million loss in 2009.
Over the years, Wesfarmers has lost tens of millions of dollars from investing in Gresham Private Equity while continuing to inject funds into it. The division at Wesfarmers of which Gresham forms a part is the only one to consistently record negative earnings over the past few years. So why would a massively successful company such as Wesframers keep funding an apparent lame duck?
Well, Wesfarmers itself made a profit after tax last year of over $2.1 billion, up 10.6 per cent on the previous year, so any losses it has sustained from Gresham Private Equity are flea bites in comparison. In effect, Wesfarmers has been bank-rolling Gresham’s private equity losses out of the huge profits it is making on its supermarkets and chain stores. Food for thought the next time you go shopping for cheap milk.
Moreover, James Graham AM, founder and director of Gresham, who still has a controlling interest in the other half of Gresham Partners not owned by Wesfarmers, also sits on the board of Wesfarmers with a shareholding worth over $30 million. So the company of which he is a board member and shareholder is investing in and carrying losses sustained by the private equity arm of the company of which he is co-owner.
All this is perfectly fine and dandy. There’s nothing untoward about it at all, so long as any potential conflicts of interest are made known. But it does give the lie to the notion that the principals associated with Gresham received a bloody nose with the collapse of Geon and were forced to retreat from the printing industry, tails between legs. Far from it. For the private equity fee-earners, it’s just business as usual.
The biggest losers
Inevitably where there are winners, there are losers too. The banks that provided the finance for the Geon roll-up –BOS/Lloyds International – were forced to sell off their debt at a massive discount so, in dollar terms, they are the biggest losers. Equally though, given that the Lloyds bank group is 40 per cent owned by the UK government following its £20 billion bail-out in 2008, the ultimate losers are the British taxpayers, a good example of ‘privatising the gains and socialising the losses’.
Locally, there are hundreds of staff, many with years of service with Geon and its predecessors, who now find themselves out of work. They not only lost their jobs but also their entitlements, having to rely on the Federal Government GEERS scheme to pick up the pieces. They still won’t get their long service entitlements. Inevitably a lot of expertise will be lost to the industry for good. Likewise, there are hundreds of smaller creditors, not just the paper companies but also contractors and trade printers, who in all likelihood will see nothing for their labours and will be left to carry the burden of debt. The ripple effect throughout the industry will continue to be felt for some time to come.
More generally, another casualty – at least for a while – is the notion of the ‘roll-up’. Back in 2006, when the private equity players were making their audacious bids to buy up printing companies like schoolboys collecting stamps, there was talk about how the future of the industry would belong to just a few mega-printers. Gordon Towell, former CEO of Geon, told Print21 in February 2008 that, in the future, “there will be only four major printing companies in the region”. With the benefit of hindsight such talk seems ludicrously far-fetched, but it is indicative of the prevailing mindset at the time. In many ways it was a response to the fragmentation of the industry and the ongoing problems of over-capacity.
In the last issue of Print21, Andy McCourt gave a roll-call of all the printing companies that have disappeared due to private equity acquisition over the past few years. The current dismemberment of Geon’s remains may see some of these businesses resurrected, albeit in a different form, but it also sees the process of consolidation through to its logical conclusion. The end result is that there will be fewer sheetfed offset printing companies in the region from now on and the likelihood is that none will ever aspire to provide a networked nationwide footprint.
It is true that many older print companies have gone but it is equally true that there are now a lot more new, re-fashioned companies, many employing technology that wasn’t even invented back when Gresham entered the fray. Indeed, as Andy McCourt points out in this issue (p65), there are many graphics-based businesses that are not even regarded as ‘printers’ as such, even though they are at the cutting edge of what printing technology today can achieve. The perception of what a ‘printer’ is lags behind the reality of the transformation that has taken place.
In that light, the Geon experiment looks like a response to an industry-view that is already out-of-date – one based on large-scale manufacturing of sheetfed offset print – when in fact the industry has been heading a different direction altogether – digital, specialised, localised and service-based.
There are lots of lines being drawn under the Geon business at the moment and perhaps collectively it’s time for the industry to do the same. Now that the big private equity players have departed the scene for the time being, everybody can get on with doing what they do best – making great printed communications and earning decent money for doing so.
From a personal point of view, I’ll just be glad I never have to write that idiotic ‘G’ word ever again.