OVATO IN ADMIN – WHAT HAPPENS NOW?

Ovato is now in the hands of the administrators, not entirely surprising given the events of the past two years, so what happens now to the once great business is up in the air.  

The administrator’s main job is to maximise returns for creditors. In order to achieve this it will keep the company going while it searches for a buyer or buyers. If it can’t find one it will put the company into receivership and sell off the assets – the customer list, the plant and equipment – as best it can.

Ovato's adminsistrators will present their initial report at the first creditors meeting in early August, then come up with options, which the creditors to vote on at the second creditors’ meeting to follow. In the meantime the business will run as usual.

Even on its reduced revenue Ovato is still a likely $300m+ a year business, still the second biggest print operation in the country, and by some distance, with long term contracts in place, and those customers want their work printed, but what are their options? While the business is in administration the contracts remain, but there will be a lot of interested printers looking at the Ovato customer list. Ovato prints some of the biggest titles in the country, including the likes of Women's Weekly, Women's Day and Vogue.

The printing and publishing world is somewhat incestuous. Ovato’s biggest customer is Are Media, the former Kerry Packer ACP business that his son James sold for $525m to German publishing giant Bauer Media, who then sold it to Mercury Capital for just ten per cent of that last year, losing $450m in less than a decade, not their smartest investment. Bauer merged with Pacific Publishing three years ago, giving it almost 60 per cent of the ANZ magazine market. 

Mercury rebranded Bauer as Are Media, which then took a stake in Ovato during the restructure 18 months ago. Are’s owner, Mercury Capital, is also the major shareholder in the Blue Star Group in New Zealand, which includes heatset printer Webstar.

Would someone buy Ovato? Well there are plenty of private equity firms looking for cash generating businesses, at the right, bargain, price. One of the reasons given by the directors for the move into administration was “legacy cost issues”, code for what it thinks are unsustainable IR contracts, and any new buyer would be free of these.

Would IVE weigh in with a bid? Well, it is unlikely to need all that capacity, but it must be eyeing the customers, especially the Are magazine work. But even if it ended up with a fair chunk of the work, it wouldn’t need all the presses.

 Are Media has to be a contender, owner Mercury Capital already owns the printer – Blue Star Group NZ –  of its Are publishing business in New Zealand, would it want a similar situation in Australia? It has to be a possibility, it is unlikely to want to see a situation in Australia where there is no Ovato, leaving it with only one option to go to for its printing.

Cash-rich Hong Kong based Left Field Print Group, which owns the Opus Group, and which also currently owns 14.7 per cent of Ovato is another potential buyer. It has pumped the best part of $20m into the company over the last few months

Would the Queensland Ovato  plant be closed like Clayton was? Probably unlikely as the cost of trucking paper products – magazines, catalogues or the increasing amout of packaging printed by Ovato in Brisbane – will be too high from Sydney, especially to Townsville, Cairns and the like.

Whatever the future holds for Ovato it is a tough day for the entire print industry. The giant companies like Ovato provide much of the platform that holds the industry together, outsourcing a heap of work, and enabling many industry suppliers to have dedicated offices here, which then service the rest of the industry.

The Hannans tried, no doubt about it, but sadly it wasn’t to be. Now it's over to the adminstrators.