The Esko sale – private equity strikes again! news commentary by Andy McCourt

Kirkbi A/S, the Danish holding company that owns the iconic Lego toy brand and is the family 'bank' of the Kristiansen family, is the seller having built a graphics arts portfolio comprising Purup, Eskofot, Barco, Gerber, Scanview, Cymbolic Sciences, Kongsberg and other products over the years, only to see its value shrink under the combined Esko Graphics banner. All that remains for Kirkbi is the former Purup DPX B3 CtP systems, successfully sold here by Currie Group and OEM'd by AB Dick/Presstek through Grafika Links. Even this product group is up for grabs, Kirkbi being prepared to 'leggo' of it, if you'll pardon the pun. All other commercial CtP activities, mostly violet not thermal, were closed earlier this year.

There is definitely a hint of 'Denmark Incorporated' in these developments. Denmark has contributed a great deal to graphic arts technology over the years (and let's not forget the future Queen of Denmark is an Australian!), but has struggled to hold onto local manufacture in the face of cheaper production sites. Even Lego manufacture is moving to the Czech Republic by the end of 2006, costing Swiss and Danish jobs. Kirkbi has found profits elusive for a number of years and even had to sell its Legoland theme parks this year.

PE firms active in the graphic arts have been prominent in recent years. Gerhard Andlinger's eponymous investment vehicle bought Harlequin (of Jaws Rip fame), Itek Graphics, Photomecca, Heights, AZ and more in the late 90s, through Global Graphics – capably managed by Johan Volkaerts. The hardware – mostly flexo – side was sold off to management and today Global Graphics is an all-software company.

To give you an idea of how cashed-up some PE firms are, Andlinger invested $6 million in a small medical fiber-optic firm NetOptix Corp. in 1999. Within a year, his stake in the company had reportedly grown to $624 million. The firm's fiber-optic business sold to Corning, Inc., for $2.1 billion. However, his philanthropy is well known, having donated $25 million to Princeton University, where he enrolled from post-war Austria in 1948, and arrived with $8 in his pockets.

Punch International is another PE firm, Brussels-based, who has made a success of buying distressed firms and turning them around. Starting with Strobbe in 2000 and adding digital press pioneer Xeikon in 2002, Punch Graphix division added conventional plate CtP developer basysPrint in 2004. Earnings, sales and profits have increased every year in double-digits. Punch Graphix listed on the London Stock Exchange AIM board in May, raising $50 million. This year it has sold many Xeikon 5000 digital presses to the direct mail industry and Shanghai's Wing Hung Printing has standardized on UV CtP with a buy of nine basysPrint UVsetters.

Burton Capital had a shot at Creo last year and did okay when Kodak bought out their investment. By the way, Burton is currently seeking control of one of the USA's largest print groups, the troubled Cenveo Inc.

In July, FITRA Investments, a consortium of Italian Industrialists, acquired the former 3M/Imation photosensitized manufacturing plant in Ferrania, which had in turn been acquired by PE-Asset Management specialists Schroders (with $250 billion under management) in 1999.

On the other side of the fence, investment firm Pacific Print Group has been well reported on these pages for its forays into Australia's high volume sheet fed printers, buying up four prominent ones with more to follow. PPG was started with money from CEO Geoff Wilding and ANZ Private Equity, which bailed out with a handsome profit when Mr Wilding was able to repay the investment.

MY CALL – “Making craftsmanship good business again” – not my words but those of Axcel who have just acquired Esko Graphics' packaging interests. They also own majority stakes in Royal Copenhagen porcelain, Orefors crystal and others. It's an interesting slogan and one that is highly relevant to today's printing and graphic arts industry.

The modern world no longer reveres craftsmanship in isolation of 'good business,' i.e. profitability. PE firms specialise in buying vulnerable businesses for a variety of reasons:- forced sale due to no succession plan, high costs with management reluctant to make cuts, perceived obsolescence but asset-stacked, good products but poor management and so on.

PE and Asset Management types are smart-money people, devoid of emotional decisions, clued in on their targets, visionary and often products of the finest business schools such as the Sorbonne, LSE, Yale and Princeton. Don't try and tell them that your 500 lpi eight-colour printing with inline screen UV will have the commercial world beating a pathway to your door because they want to see the financials, and then put them into context with the greater market to see if it's worth a punt of their money - or their funds under management.

Esko have really great products, probably better than the average portfolio but Kirkbi couldn't make it work for them under their system of a high-ethics, foundation-run family holding company.

PEs are the shock troops of the business war and there are always casualties until the tide turns. They possess the most important attribute that makes the capitalist system work – capital. But, they can ensure survival where destruction looms apparent.

There will be more, much more, of PE and Asset Management ownership on both the supply and production side of our industry in the near future.