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Independent Management Report July 24, 2000 |
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Reynolds to Stay in Automotive Forms Manufacturing Business On a smaller scale, Reynolds will supply selected products to ISG in the United States and vice versa. In addition, ISG plans to open a plant in the Celina, Ohio, area to manufacture non-automotive forms products previously made at the Reynolds plant there. ISG's 300 trade partners, including many independent manufacturers, have nothing to worry about, says Hedeen. ISG is planning business as usual, which means management, employees, manufacturing facilities, and outsourcing agreements will remain in place. Says Hedeen, "I think this is an excellent opportunity [for those companies] to continue to grow with us." No changes are planned at Wilmer, an independent manufacturer, which was also included in the sale of ISG. "There is no reason that we would change anything [at ISG] other than the CEO [Rodney Hedeen] telling us they need to change anything," said Joe Lipscomb, a principal of The Carlyle Group based in Washington, D.C. He says his firm was interested in buying ISG because of a quality management team that has managed to "redefine themselves from a fixed asset company to a customer-centric one." He says that ISG officials, rather than seeing technology as a threat to their core business, have viewed technology as an opportunity to drive growth, something many players in the document management business are striving to achieve. ISG will announce a new name when the spin-off to The Carlyle Group is complete. The sale is targeted to close by Sept. 30, the end of Reynolds' fiscal year, and likely will close this summer. ISG will continue to be headquartered in Dayton, Ohio. Sales of ISG in fiscal 1999, ended Sept. 30, accounted for about 46 percent or $731 million of Reynolds' $1.56 billion in net sales and revenues. The current 12-month revenue run rate for ISG is approximately $800 million, according to the company. The Carlyle Group is a private equity firm that organizes, structures and acts as lead equity investor in management-led buyouts, private placements and venture capital transactions. Although the spin-off of ISG for $360 million cash was not a management-led buyout, members of ISG's management will receive equity positions in the new company, according to Lipscomb. The Carlyle Group will be represented on the board of directors of the new company, although the number of seats had not been determined at press time. Firms such as The Carlyle Group typically hold on to companies for a designated period, then sell them or do an IPO to recoup their investment. Lipscomb says his firm has owned businesses for periods as short as six months and as long as 10 years. "We don't place a specific time horizon on how long we own companies," he says. "...We're looking to grow the business [ISG]....We'll worry down the road what we'll do." Hedeen and Lipscomb believe the spin-off will allow ISG to be more flexible than it was as part of a larger company best known for the sale of automotive forms and systems. Reynolds officials say the sale of ISG puts Reynolds in a strong cash position to continue pursuing acquisitions, partnerships and new product development that will, as Paul Guthrie, vice president of corporate communications says, make it "the category killer in automotive." At a board meeting June 19, Reynolds' board of directors approved increasing the company's share repurchase authorization by 5 million shares to 6.7 million shares. Once the sale is complete, Reynolds will eliminate positions at its corporate headquarters in Dayton that are no longer needed to run a company about half the size of the old Reynolds, says Guthrie. Ward/Kraft Licenses Moore's Pressure Seal Products Ward/Kraft's patented production process assures users of a consistent pressure seal performance for all standard C, Z or V-fold applications in 11- and 14-inch sizes, the company said in a press release. The licensing agreement also includes what Ward/Kraft calls "Eccentric Z" (uneven fold) applications to provide a larger print area on simplex printing applications. "Distributors can now supply pressure seal products to their customers with confidence in both product performance and long-term, legal availability," said Ward/Kraft President/CEO Roger Kraft. American Forms Buys CST/Star Assets CST/Star Products announced in April that it was closing. "Dramatic changes in the paper converting industry in recent years have impacted our business, and our ability to react to those changes has been hampered by our debt levels," said Larry Newman, CST/Star executive vice president and COO in a letter to customers. "As a result, we will be winding down our operations, closing plants and selling off property and equipment over the next several months." The company closed seven plants. American Forms reopened facilities in three locations: Wheeling, Ill.; Plano, Texas; and Leola, Pa. It hired about 100 employees, including many of CST/Star's 350-plus employees, such as the plant managers at all three locations. None of CST/Star's senior management team were retained. According to Alan Vosper, president and CEO of American Forms, the company acquired the assets of CST/Star for several reasons: It had excellent brand-name recognition, quality converting equipment and solid employees which American Forms could retain. "Our focus is to stay dedicated to forms distributors and paper merchants," says Vosper. "With the support of our seven paper mills, we believe we will be extremely competitive with all of our product lines." American Tissue, a $500 million company based in Hauppauge, N.Y., has about 12 affiliates, nearly 20 plants and seven paper mills. The company has grown through acquisition. According to Vosper, American Tissue started American Forms and bought the assets of CST/Star because "our business is focused around paper, not just tissue, as the name suggests." Besides tissue, American produces and coverts various grades of paper, corrugated products and multi-wall bags. Distributors can contact American Forms' customer service department at (800) 323-8180. IKON and iPRINT sign Digital Printing Deal POINTS AND CONTROVERSIES
John Rocker (Not) An amazing event occurred a couple weekends ago. Some would say it was an event of historic proportions. Camden Yards, home of baseball's Baltimore Orioles, attracted its largest number of fans ever (and my nephew, Chris, was a ball boy at the game). Why was it the largest crowd ever? Did Cal Ripken finally retire? The Orioles certainly are not in the pennant hunt this year, so there had to be some sort of "other" kind of epochal event. I rushed to find my copy of the Washington Post, dove into the sports section—but I only had to read two sentences to learn that the record-breaking crowd showed up to see one person. No, Mark McGwire was not there to hit homers. It was relief pitcher John Rocker, Mr. Controversial, a baseball player with a fastball and oddball views of the diverse nationalities that make up the population of the United States. How sad that he was the reason for all the fuss. And, he never threw a pitch. Sure, people came out of curiosity; some probably came to boo. But it was much ado about nothing. You might say we have our own John Rocker right here in the printing industry. People come from miles to see what it's all about. Some marvel at its potential. Some come to jeer at what they believe could be the death of the distributor. I'm talking about e-commerce. There are at least 30 companies trying to make a mark with business to business (B2B) e-commerce in the printing industry. No one has emerged as the leader. In fact, one of them reportedly lost $20.7 million on $68,000 in sales in the first quarter of this year. (Yes, in the preceding sentence that first number was in the millions, and the second was in the thousands.) So, what's all the fuss? Is the B2B e-commerce hoopla like the rush to see John Rocker not throw a pitch? I don't think so. B2B e-commerce will have a definite impact on our industry. It's anyone's guess how extensive the impact will be, but I'm pretty sure that those who want to see lots of good pitching won't be disappointed. Distributors and manufacturers must understand how e-commerce could impact their companies and their end-user clients. Also, be sure to keep your business focused on adding value, no matter where you are in the distribution channel. If your company isn't adding value, it might resemble John Rocker—much ado about nothing. TECHNOLOGY Electronic Signatures Legalized On June 30, President Clinton signed the Electronic Signatures in Global and National Commerce Act (bill number S.761). The E-Sign Act, designed to advance e-commerce, gives electronic signatures and contracts the same legal weight as their paper counterparts. Until now, e-commerce was used mainly for low-value retail purchases, such as books, CDs, toys and other consumables. The E-Sign Act allows consumers to make high-value transactions, trade stock, get a mortgage, buy insurance and more online without waiting days for paperwork to be mailed back and forth. While the law, which takes effect Oct. 1, enables businesses, consumers and the government to use e-signatures and contracts, it includes some restrictions to help protect users. Consumers must consent to the use of e-signatures and contracts, and they can withdraw consent and request paper documents at any time. If someone decides to receive electronic notices, companies must verify that the consumer has the appropriate hardware and software to electronically access the information they will be provided. In addition, the E-Sign Act doesn't apply to certain documents, including wills, codicils and testamentary trusts; court orders; product recall notices that impact health and safety; and notices of termination, such as eviction notices, health insurance lapse notices and utility cut-off notices. These must still be handled by paper. E-Sign Technology "Electronic signature" is a broad term that encompasses a variety of electronic processes used as alternatives to handwritten signatures. There are three basic types of electronic signatures: common electronic signatures, secure electronic signatures and digital signatures. Common electronic signatures include digitized images of handwritten signatures, passwords, personal identification numbers and other marks, sounds, symbols or processes that indicate a signer's agreement to terms of a contract or transaction. Two of the most familiar common electronic signatures are signatures used on email messages and the "click here to accept" buttons used on software license agreements and online purchases. Secure electronic signatures offer greater protection. They typically include information that identifies the signature as belonging to a particular person. For instance, they may incorporate biometric information, such as a fingerprint. Digital signatures refer to electronic signatures that provide a connection between a signer's identity and their electronic mark, as well as advanced cryptography. They are most often used in a public key infrastructure, which provides a mechanism for issuing and managing online credentials that signers use to create digital signatures. Effect On Our Industry Such fraud is what concerns many in the document management industry. "This lends itself to one more avenue for fraud," says Pete Guglietta, director of production and purchasing for The Graphics & Technology Group, a distributorship in Glenview, Ill. "It's becoming easier to create fraudulent checks and other documents thanks to scanners and other technologies. Electronic signatures will be a walk in the park." Many industry pros are banking that public key encryption technology will become the industry standard. It is much more secure than other electronic signature technologies. Public key encryption uses two keys, one to encrypt the message (the public key) and one to decrypt the message (the private key). To send a message, users acquire the recipient's public key, create a message and encrypt it with the recipient's public key. Next, users send the encrypted message to the recipient, who decodes it using a private key. Once a message is encoded, it can only be decoded using the recipient's private key. Aside from security issues, document management pros also are concerned with how electronic signatures will affect their sales. "Electronic signatures have a very positive impact from the e-forms side, but an extremely negative impact on the print side," said Michael Cole, owner of Metroform, in a message on DMIA's Listserv®. Metroform, a distributorship based in Rancho Cordova, Calif., sells paper documents and forms automation solutions. While electronic signatures present opportunities for expanding electronic document usage, they decrease the need for paper documents. Even with the E-Sign Act, most don't envision the demise of paper. But its decline concerns some. "It's one more kink in the armor," says Guglietta. "Not that it will render paper documents obsolete, but it's just another blow to the industry." For more information on the E-Sign Act and electronic signatures, check out PureEdge Solutions Inc.'s Web site at www.pureedge.com/esig. SPECIAL REPORT Workflow Management Buys OEI, Sells Off Plants PALM BEACH, Fla.—As of July 12, the industry had one fewer direct-selling manufacturer. That's when Workflow Management Inc., the parent company of distributorship SFI, finished divesting itself of the forms and labels plants operated by OEI Business Products, a direct-selling manufacturer it purchased March 23. Five independent manufacturers acquired various aspects of five different OEI manufacturing facilities. A sixth plant in Houston that made stock forms was closed. The seventh, a St. Louis flexible packaging facility, was integrated into another Workflow operation. From the time Workflow officials began considering an acquisition of OEI, based in Itasca, Ill., they knew they wanted to acquire the sales force, but not OEI's manufacturing capabilities. The sale of OEI was necessitated by the death of owner and founder Bob Houston in April 1999. Upon Houston's death, the company was transferred to a trust managed by a Chicago bank. When the trust was unwilling to break up OEI, Workflow officials moved forward anyway, ultimately embarking on a quest to convert a direct-selling sales organization into a distributor-based one by selling off manufacturing facilities. Workflow officials say they were attracted to OEI's well-trained sales force, its customer base and a strong presence in the Midwest. Tom D'Agostino Sr., chairman of Workflow Management, describes his strategy with OEI as "a very risky proposition" and "quite an experiment." He says his success through the years in hiring sales reps from the majors gave him the "impetus and confidence" to attempt to convert the OEI sales force from a direct-selling one to a distributor organization. (Although Workflow has manufacturing capabilities for a variety of products through its Fulfillment Division, it no longer owns any forms manufacturers in the United States, explains D'Agostino.)
The OEI sales force "needed a new strategic focus to go forward," he says, and the salespeople were "looking to operate on a fuller scale in the graphic arts industry." D'Agostino says OEI's reps can now sell products in what he estimates to be a $150 billion marketplace (including documents, envelopes, promotional products, commercial printing and office supplies) rather than the $11 billion arena in which they previously operated. In the early stages of the transition, he is "very pleased" with the acquisition of OEI. Workflow officials anticipate doing at least $55 million in OEI business this year, a target they say exceeds OEI's run rate at the time of the acquisition. They concede that OEI's fiscal 1999 sales were higher, but say sales were declining since Houston's death left the company's future uncertain. If OEI reps meet their budget, there's little doubt Workflow got a bargain. Publicly traded Workflow disclosed it paid about $19.5 million for OEI, with approximately $10 million paid at closing and the balance due next February. Proceeds of the divestitures exceeded $12 million, meaning Workflow paid just $7.5 million for the OEI sales force and customer base. OEI is being rolled into SFI, which D'Agostino says has an annual run rate of approximately $300 million. Chuck Veit, a 28-year veteran of OEI who was executive vice president of operations at the time of the sale, is excited about the new opportunities for OEI reps. As employees of SFI, the reps will no longer be constrained by OEI's manufacturing capabilities, he says. "To offer a total solution to our customers, that's what we wanted to do for years," explains Veit, who is now a divisional vice president for SFI. Plus, reps will now have more time to spend in front of customers since administrative functions, such as invoicing, are centralized at SFI. By the end of this year, all OEI sales offices will complete the transition to the SFI name. In the Atlanta, Philadelphia and Washington, D.C., areas, SFI and OEI both maintained sales offices. OEI employees now work from SFI offices, according to Thom Scott, director of marketing for Workflow, and there may be further consolidation of office space in other areas.
OEI employees are being trained in other product lines and in Workflow's Internet-based iGetSmart inventory management and ordering system. At the time of the sale, OEI employed 75 salespeople and 12 branch managers operating out of 13 sales offices, according to Scott. He says a few OEI salespeople left the firm before the deal was finalized, but SFI retained all salespeople with the firm at closing. The Manufacturing Plants On April 8, Workflow sold the Lakeville, Minn., manufacturing facility to Performance Office Papers, also in Lakeville. Russ DeFauw, president of Performance, is moving his cut sheet operation into the 60,000-square-foot facility. "It gives us room to grow," says DeFauw, who happens to have a past connection to OEI. In 1975, he started the Minnesota division of the company out of his garage and served as OEI president from 1981 to 1984. Says DeFauw, "It was a very good building close to ours, and the railroad siding was an important factor." Performance hired most of the 10 production employees. The deal also included raw material and inventory, but did not include a vendor agreement or equipment. Repacorp Label Products Inc., Tipp City, Ohio, acquired OEI's label plant in West Allis (Milwaukee), Wis., April 28. The deal was the first acquisition for Repacorp owner Rick Heinl. His firm more than doubled capacity and physical plant size with the acquisition of the 56,000-square-foot leased facility. "It's a great plant," he says. "It's extremely efficient. It's given us [needed] capacity. We couldn't find people for a second or third shift in Dayton." As part of the deal, Heinl hired 38 of the plant's 50 employees. Some of the employees were not needed because they duplicated administrative functions performed at Repacorp's headquarters and because the Wisconsin facility performed composition work for OEI company-wide, Heinl explains. The purchase allows Repacorp to expand its process printing capabilities and add U.V. capabilities, 18-inch widths and the ability to print on adhesives. Highland Computer Forms Inc. acquired OEI's Urbandale (Des Moines), Iowa, custom forms plant May 8. The deal was the second Des Moines area acquisition for the Hillsboro, Ohio, firm in less than a year. In July 1999, the company purchased Economy Data Products Inc., also in Urbandale. As part of the agreement, Highland hired approximately 35 employees, nearly all the work force at the 50,000-square-foot leased facility. "The close proximity to the other [plant] makes it a nice transition," says Bob Wilson, CFC, vice president of Highland. The acquisition allows Highland to continue to expand its custom forms business, which accounts for 30 to 35 percent of sales, he says. The purchase also gave Highland integrated label capabilities. Wilson says the built-in customer base from former OEI reps—as a result of a preferred vendor agreement with SFI—is also advantageous. Added capacity and a desirable location along Interstate-95 led Maggio Data Forms to acquire OEI's custom forms facility in Bellmawr, N.J., according to Charles Johnson, who oversees sales and marketing for the firm. Maggio operates 24 hours a day, six days per week, out of its Hauppauge, N.Y., headquarters. "We couldn't grow much more out of this plant," Johnson explains. In addition, the leased facility is ideally situated as Maggio continues to expand in the Southeast, he says. The company, which hired nearly all of OEI's production employees in New Jersey, added check printing capabilities with the expansion. The acquisition is the second one for the Long Island firm, which bought Ticket Craft Inc., a Merrick, N.Y., manufacturer of tickets in 1998.
The final divestiture of OEI facilities occurred July 12. United Computer Supplies Inc., Elk Grove Village, Ill., purchased the Chicago-area OEI headquarters and stock forms manufacturing facility. Jack Zimmerman, president of United Computer Supplies, will start moving his company's headquarters and manufacturing facility into the building in nearby Itasca in August. The opportunity to own a building (the Elk Grove Village facility was leased) and sign a preferred vendor agreement with SFI attracted Zimmerman to the deal, he says. He also purchased raw materials from the Itasca and Houston facilities. According to Workflow officials, 16 production employees in Itasca were let go prior to the sale, and the manufacturing equipment was sold. Jim Anderson, president of Corporate Development Associates, a Hilton Head, S.C., intermediary firm specializing in mergers and acquisitions, was involved in the Workflow purchase of OEI as well as the plant divestitures. He views the sale of OEI and its incorporation into a distributorship as a victory for the independent segment with benefits to many parties. "We took a direct selling manufacturer and turned it into a distributor by merging [it] with SFI and gave five trade manufacturers an opportunity to expand operations," he says. |
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