Target Report: Cenveo Returns to Its Roots – July 2022 M&A Activity

Good times in the envelope business

In what appears to be a positive end to a long and winding road, Cenveo’s management team has completed a management buyout of the company. The Burton family, which has effectively controlled the company since 2005, is now collectively the majority shareholder, with the remaining equity held by other senior executives.

Cenveo, which started as an envelope maker over a hundred years ago, and at one point seemed determined to acquire something other than envelope makers, has now been reduced to its core. What remains is an envelope printing and converting plant. According to the press release announcing the management buyout, “Cenveo is now an exclusively envelope-focused company and the largest envelope converter in North America.”

The management buyout transaction can be an example of brilliant strategic planning, or just good luck finding the right moment. The envelope business has grown from a highly price-sensitive commodity business to a critical part of the print-centric direct mail and transactional document supply chain. For those readers of The target report who don’t know the printing industry intimately, let’s just say that printers and mailers are scrambling to get sufficient quantities of envelopes to fulfill customer orders. With the continued shortage of paper (see Paper Industry in Transition – May 2022), converters have resorted to orders with brown paper stocks which are harder to convert into envelopes and harder for direct mail printers to process , instead of the normally widely available standard. white paper.

The supply-demand curve has reversed, envelopes are in demand and scarce. Presumably, this has been good for envelope makers, at least until the market returns to equilibrium. Cenveo is finally well placed.

Cenveo—Process of a roll-up

When we last wrote about Cenveo’s disposal stream, in the fall of 2020, the company had just completed the sale of its Cenveo Worldwide Publisher Services division to CJK Group. This transaction followed the sale of a publications printing plant in Pennsylvania and a fulfillment and digital printing plant in Maryland, both of which were sold to Intellicor, a Pennsylvania-based direct mail roll-up. In addition to these divestments, Cenveo completed a long series of plant closures, culminating in the closure of the former Cadmus Communications publications printing plant in Richmond, Virginia. These were just the latest deals in a steady drumbeat of divisional sales and plant closures, all surrounding the filing for Chapter 11 bankruptcy protection in 2018. Throughout all that churning , it was difficult to discern if there was a rhyme or a reason for the unfolding. . Divisions that most print-related businesses would consider valuable assets, such as manufacturers of folding boxes, shrink sleeves and labels, have all been eliminated. There was even, amid the frantic teardown, the sale of an envelope company, Quality Park Envelope in Minneapolis, to LSC Communications. Whether management was executing a planned strategy to convert the conglomerate into a pure-shell company, however, was not apparent at the time (see CJK Goes Global as Cenveo Unwinds – September 2020).

The picture becomes clear

In August 2021, the printing world learned that a new consolidator in the commercial printing segment had taken to the big stage and had acquired Cenveo’s commercial printing business, including three major printing companies in Eureka, Missouri, Amarillo, Texas and San Antonio. , Texas. With the financial backing of JAL Equity, the consolidator had quietly built a national network of 15 print shops. The new entity was named ColorArt, an apparent homage to the original Missouri factory owner before it was acquired by Mail-Well, Cenveo’s predecessor (more on that later). With this sale, Cenveo exited the highly competitive high-volume commercial printing business at the commodity level.

Remaining once again in divestiture mode, Cenveo unloaded its custom label group, in a sale earlier this year, to Brook + Whittle, the label, shrink sleeve and packaging roll-up currently backed by Genstar Capital. Now distilled down to a simple envelope manufacturing company, Cenveo was poised for management buyout.

How did it get crazy?

Cenveo traces its roots to 1919 when two entrepreneurs moved west from Missouri and founded the Rocky Mountain Envelope Company. With the Denver area’s rapid economic growth, the company took off, along with many other “Rocky Mountain” brands, so the founders completed the first rebrand and began manufacturing “Mail-Well” products. under the new corporate name, Rockmont Envelope Company. .

It was just envelopes until the late 1950s when the company made some modest inroads into printing stationery and paper bags. In 1960, Rockmont began to diversify, first into school supplies, notebooks, notepads and tablets. The company was again renamed Pak-Well, with Rockmont Envelope now structured as a subsidiary of the company. The company did not escape the early 1960s public craze for midsize manufacturers and went public when revenues were just over $13 million. In addition to its headquarters in Denver, Colorado, the company had manufacturing plants in Portland, Houston, Phoenix, Los Angeles, Salt Lake City and Honolulu.

Declared income has never been exceptional. By the early 1970s, the company was posting a net profit of just $1.74 million on sales of $53.8 million (3.23%), setting a trend of low margins that would continue over time. measurement of business growth.

Through a series of transactions, Pak-Well eventually became part of the paper company Great Northern Nekoosa Corporation, which later became part of Georgia-Pacific in 1990. By this time, the division had returned to strict paper production. envelopes under the Mail-Well brand. , as well as under the Wisco Envelopes brand.

The low-margin envelope business was spun off from Georgia-Pacific in 1993 as the Mail-Well Company, with 16 manufacturing plants (remember that number) that produced approximately 13 billion envelopes per year. Leverage was high, with $17 million in equity supporting $142 million in debt, another trend that would continue. Acquisitions were on the jump table, including the 1994 purchase of American Envelope Company and the addition of Canadian envelope maker Supremex in 1995 (subsequently one of the first spin-off companies under Cenveo in 2005) . In 1995 the company went public again, reducing leverage, but not for long. Margins remained tight, with a reported net profit of $8 million on sales of $597 million (1.34%).

1995 also marked Mail-Well’s diversion from the basic printed products business into the very high quality commercial printing business, with the acquisition of the Graphics Arts Center in Portland, Oregon. Instead of simple Jane envelope products, Mail-Well had ventured into the business of cutting-edge, highly crafted printing of critical color marketing materials, such as annual reports and automotive brochures. It had also begun to compete in providing commercial printing services to the distributor market, with the acquisition of Murray Envelope in Mississippi.

Mail-Well was on a tear, competing with Consolidated Graphics to see which company could acquire more, faster. In 1998 alone, Mail-Well made 23 acquisitions, including the purchase of creme de la creme commercial printing company Anderson Lithograph in Los Angeles. The same year, the company entered the packaging business with the purchase of the labels division of Lawson Mardon Packaging. In May of that year, Mail-Well completed a simultaneous merger with seven commercial printing companies in a share swap, the largest of which was St. Louis-based Color Art with sales of business of 75 million dollars. In 1998, Mail-Well posted revenues of $1.5 billion. However, net income remained dismal, in relative terms, at $21.7 million (1.45%).

Things started to go downhill in 2000, when the company reported sales of $2.43 billion and net income of $27.6 million (1.14%). The company now employed more than 13,000 people in the United States and Europe, operating 110 print shops. The turn of the millennium also marked the beginning of a long phase of restructuring, merging of operating divisions and closing of facilities. The company changed its name again in 2004 to the somewhat confusing name “Cenveo” (Rockmont Envelope, anyone?)

However, the days of dealing were not over, and in 2007 Cenveo purchased Cadmus Communications, further diversifying the business as a major provider of content management and production of scientific, technical and medical journals.

In what now appears to have been a prescient move, Cenveo’s last major acquisition was the purchase of bankrupt National Envelope in 2013. The deal, structured as a 363 sale in bankruptcy proceedings, was a bargain, estimated at $25 million for a $300 contract. million in turnover. With this transaction, the latest in a series too long to mention here, the company returns to its roots. Cenveo is now an envelope manufacturer, producing approximately 50 billion envelopes per year at 14 factories across the United States.

The question remains, can the new owners of Cenveo stick to the core business and when the time comes to grow again through acquisition, will the path be clearly defined, strategically complementary and financially accretive for the company. ‘company ?

Addendum—Other envelope readers

Earlier this year in March, Tension Corporation, one of the largest envelope manufacturers in the United States, announced the acquisition of the assets of Intellus Direct’s printing division. The acquired division is the successor to the former IBS Direct, a direct mail and envelope converter located in King of Prussia, Pennsylvania. The factory operated under the short-lived name of Intellus Marketing, a direct mail roll-up that acquired the IBS Direct factory in 2018, among other assets now sold.

A new private equity-backed envelope manufacturing platform company was announced in July. Austin, Texas-based CenterGate Capital has purchased United Envelope. The acquired company is based in Ridgefield, New Jersey, and has additional manufacturing sites in Pennsylvania and Ohio. CenterGate looks for add-ons in the Envelopes segment. However, not content to focus strictly on envelopes, CenterGate also says it will consider add-ons in flexible packaging, folding cartons, paper-based products and other graphic arts services.

View the target report online, with transaction logs and source links for July 2022

www.graphicartsadvisors.com

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