The Kiwis are coming – news commentary by Andy McCourt

BlueStar buys Merritt Madden – Pacific Print Group buys Graphic World. New Zealand trains its big guns on the Australian printing industry and suggests there is plenty of ammunition still to fire.

Graphic World, the high profile Sydney-based company, was the first to fall when Pacific Print Group of Auckland acquired it, and its $25 million turnover, in a raid that took the local industry by surprise. Graphic World is a plum prize, a well-managed magazine printer with an impressive client list that includes Reed Business Publishing and the Ad industry’s weekly bible B&T.

Pacific Print Group (PPG) is New Zealand’s second largest printing group after Blue Star and is majority owned by Geoff Wilding, (pictured).
He told Print21online: “The purchase of Graphic World marks the start of our planned expansion into Australia. Although there are some risks associated with moving offshore, we have bought just about everything of size in New Zealand that meets our criteria of excellent financial performance – and is available at a fair price – and we were faced with a fundamental decision: do we lower our standards and keep growing in New Zealand? Or keep our standards up and look overseas for opportunities? Clearly we have chosen the latter and believe this is the right thing for our shareholders and existing businesses.”

PPG’s other major shareholder is ANZ Private Equity.

Pacific Print Group operates as a pure investment holding company with each subsidiary independently managed and financed. This is good news for Graphic World’s management and staff. The business acumen and access to capital that PPG brings is the killer ingredient that many single-site printers lack.

According to Wilding, although there is some purchasing leverage with raw materials in a larger group, the main reason for PPG’s excellent performance is “almost entirely the result of the skill and passion of our management team.”

Merritt Madden also falls to the Kiwis.

The other major Australian printing acquisition by a New Zealand company is the Blue Star takeover of Merritt Madden Printing of Alexandria, Sydney. This one even hit the mainstream media as the NSW Labor Premier’s wife, Helena Carr is managing director and major stakeholder.

The Sun Herald, NSW weekend newspaper, noted a sweet irony in that Merritt Madden’s client list includes the Liberal Party. Mrs Carr, formerly with Leigh Mardon, will assist with merging Merritt Madden into the Blue Star Group but is expected to move on amidst speculation that Bob Carr is considering quitting as NSW Premier and taking up a senior posting elsewhere. The couple recently bought a holiday home in New Zealand.

Blue Star’s Australian assets already include Sydney’s Link Printing and Melbourne’s Craftsman Press, as well as Rapid Labels, Webstar, Kings Mailing Services PMC and Premedia concern Techniche, ad agency Dunham Bremmer and logistics firm Prolgix.

Managing Director of Blue Star’s Australian operations, Noel Rogers told Print21online: “We recognised Merritt Madden’s suitability and fit into the Blue Star Group. The intellectual values, type and quality of work made it an ideal acquisition. There is much more potential in the printing industry and, although Blue Star is not aggressively pursuing further acquisitions, we will continue to consider quality opportunities if they arise.”

Merritt Madden adds a very high quality and environmentally-sound printer to the stable. It also boosts Blue Star’s turnover from Australian sheetfed operations, which is already 20 per cent higher than New Zealand sheetfed sales. However, in its 2004 report, Blue Star’s revenue was $174.7 million in New Zealand and $163.9 million in Australia for a combined $338.6 mil. This includes Webstar, which alters the balance somewhat.

On industry conditions generally, Rogers noted: “Both the New Zealand and Australian economies are buoyant and very similar and there is a common thread running between the two markets. We view Australian and New Zealand operations as two units of the same business. Last year saw an approximately 60 per cent jump in imports of LWC paper used in catalogues and magazines, so this gives an indication of the buoyancy of the market. The industry continues to be progressive and stimulating.”

MY CALL

Expect more of the same.
Iconic NZ Prime Minister Robert Muldoon is reported to have said, ‘Every New Zealander that moves to Australia increases the average IQ of both countries.’

Hubris aside, there are some very smart business people in Kiwiland. They are not slow to see an opportunity and take very businesslike approaches to expansion challenges. Carter Holt Harvey (CCH) pioneered this over a 100-year dynasty that resulted in the diversified forest-product company ratcheting up $3.8 billion in sales and attracting a 51% equity partner in US giant International Paper. CCH today, by their own admission is ‘more of an Australasian company.’

Blue Star is a little different. It’s controlled by Tom Sturgess, an American ex-Vietnam veteran and Harvard MBA with a CPA who, since 1996 lives in Nelson, New Zealand. Sturgess’s fiscal credentials are highly impressive. He has increased equity value in every company he is listed as having been involved with. Even with his duties at Blue Star, he is also a director of Goldman Sachs-JB Were NZ and invests heavily in Kiwi rural properties. Presumably his Texan origins gave name to his cattle/sheep farm company ‘Lone Star’ which he actively farms.

Tom Sturgess steered the sale of the printing side of Blue Star from its US office supply parent with a $165 million management buy-out in 2001 and now appears to be the supremo, although some bonds are traded on the NZSX.

He appears to have embraced NZ life and, having invested so heavily there, is obviously committed to the land, leaving the day-to-day running of Blue Star to Managing Directors Keith Brodie in New Zealand and Noel Rogers in Australia.

Pacific Print Group’s foray has all the appearances of being influenced by Blue Star’s success: Acquire quality printers with $5million plus turnovers, make a move across the Tasman, inject sound financial management and capital where needed and let each be run as an independent profit centre rather than a corporate behemoth. As Geoff Wilding notes: “Privately owned businesses often have ‘lazy’ balance sheets with too much money tied up in working capital, excessive investment in plant, and often inappropriate levels of debt. We therefore focus a great deal of attention on maximising the efficiency of our operating companies balance sheets.”

What both companies have recognised is the value that exists in the Australian print marketplace. The NZ printing industry is estimated to be worth $1.4 billion annually. The Australian, in value-added, is estimated at $13.4 billion – ten times the opportunity. New Zealand began consolidating its industry long before Australia, which is still fairly fragmented, despite the past two to three years of mergers and acquisitions with the likes of Penfold Buscombe, McPherson’s, JS McMIllan, PMP, IPMG and others.

Add to this drive some very good brains with venture capital, merchant banking, and turn-around experience and, well, Australia is a prime hunting ground.

In fact, we could be viewed as a supermarket shopping shelf full of cut-price print asset bargains giving access to lucrative markets for savvy international investors. We also have a business-friendly government and a company tax rate three per cent below that of New Zealand – 30 per cent versus 33 per cent.

Of course it can cut both ways; PMP has plants in Auckland and Christchurch but hey, look at the top and who do we find? CEO David Kirk, a former All-Black who has worked wonders on Australasia’s largest printing concern. PMP was on an ugly slide until he took over in February 2003. Kirk’s enterprise appears to have turned PMP around with a 13 per cent rise in profits and a 21 per cent rise in shareholder value in his first financial year, although debt remains a problem.

So what to expect? More of the same. And it’s not just the Kiwis; Canadian Volker Wagner snapped up a swag of Sydney printers through his Teldon Print Media group earlier this year.

If you are a medium-sized quality offset printer, especially with recent B1 presses and a good client list, you may well expect a call from someone wanting to buy your business, and he or she might have a Kiwi accent. Unless you decide to do the same and get on the consolidation bandwagon. But make sure you have a full line-up of MBAs and CPAs standing behind you!