Posts Tagged ‘GEON’

  • Letter from America – Rohan Holt on the demise of Australia’s print giants

    Rohan Holt, the US-based Australian developer of the Metrix print job planning and imposition system, reflects on the collapse of Australia’s print titans and how it might have been avoided.

    As Holt flies back to Australia to represent Metrix on the Fujifilm stand #1200 at PacPrint next week, his return comes at a rather trying and soul-searching time for the Australian printing industry, with the recent and painful demise of GEON, a Metrix customer since 2009.

    Holt’s history with GEON and the companies that were absorbed into GEON goes back a long way.

    “I was working as a production planner at RT Kelly when I made the decision to leave and start writing software,” says Holt (pictured). “I had spent the better part of 10 years drawing layout diagrams for prepress, and I had seen a lot of investment going into new prepress software and hardware systems, yet I was still hand-drawing diagrams for them. I thought, ‘there must be a better, more automated way to give production planning instructions to prepress’.”

    “I had my tradeshow debut at PacPrint 1996 with SuperImpose (which later became Creo/Kodak UpFront). SOS Printing (now SOS Print + Media Group) was the first company to license SuperImpose, followed by Chippendale Printing, and then RT Kelly.

    “Over the next few years so many great Australian printers bought SuperImpose/UpFront, including Agency Printing, Concord, Diamond Press, Franklin Web, Hannanprint, Inprint, McPhersons, Mockridge Bulmer, Offset Alpine, Pot Still Press, URI, Vega Press, Websdale Printing, and many other great pre-GEON era companies. Looking back, what a privilege it was to be involved with such a significant change in the production planning process in our industry,” he says.

    Holt was disturbed by the closure of GEON, first and foremost because of the loss of jobs by hard-working and loyal employees, some of whom he had either worked with or met in the nineties while working as a production planner or while selling SuperImpose. But, the demise of GEON also hit close to home for Holt.

    “My company, Metrix Software, lost over $25,000 between the failures of GEON and Vega Press this year,” he says. “$25,000 may not be a big deal for larger companies, but it is a substantial hit for smaller guys like us.

    “But what bothers me most is that I’ve seen companies fail that shouldn’t have. Some traditionally successful companies drag their feet and only begrudgingly make incremental changes while all the time their industry is actually in the midst of a revolution. In many cases the switch to Metrix is simply too little, too late,” he says.

    According to Holt, Penfolds Buscombe first trialled Metrix in 2007.

    “By that time they already knew that ‘gang printing upstarts’ were making huge amounts of money with Metrix, but now that Metrix could handle bound products too it was time to try it out. They trialled Metrix from July to September 2007 but it seemed no one was in a hurry to make a decision.

    “The status quo of using UpFront and Preps was too comfortable. UpFront computerized the planning process, but could not automate any ganging of jobs, so it could not help them find any new efficiencies. However, they had trouble thinking differently, partly because they had so many spare UpFront licenses from all the printing companies they had acquired.

    “What a terrible reason to stick with an old, inferior product. Eventually, GEON got another Metrix trial going in June of 2008. After months and months of tests, proving a clear and compelling ROI, GEON finally purchased Metrix in December of 2009, 18 months after engaging.

    “Yes, GEON was a larger than usual customer and large companies can move slowly, but I suspect the delay in acting says volumes about the disconnect between senior decision makers and production realities. Metrix had won the GATF InterTech Technology Award years earlier in 2005; they knew many printers who were using it to bring unheard of productivity downstream right into their Prinergy workflow. Why delay 18 months? Ironically, when GEON did finally purchase they swore us to secrecy as if no one else knew about Metrix.”

    So, who were the ‘gang printing upstarts’ that compelled GEON to try and eventually purchase Metrix? There are a good number of successful gang printers in Australia, some of whom in the mid-2000s were using Metrix and making profit margins of up to 40 per cent. Some of these gang printers were able to routinely produce over 500 jobs in one shift, with just two offset presses. No wonder GEON had to sit up and take notice.

    “The efficiencies that can be had by integrating Metrix do not come simply from doing the same old tasks faster, though Metrix does indeed speed jobs to the press,” says Holt. “No, the efficiencies come from producing work in a new way. Metrix approaches job planning as an economic problem, not a geometric problem.

    “User-defined costing data – how much the stock costs, how much the press time costs, how many make-readies are needed, and so on – is used to calculate the most profitable way to do even one single job. Is it cheaper to produce on the Komori Lithrone G40, or is it cheaper to print on the GTO? Or the HP Indigo? Is it cheaper to produce sheetwise or work-and-turn? And what if a second or third job can be combined onto the sheet with the first one? One click and Metrix will throw them onto the sheet and tell you that the additional jobs may be almost free to produce.”

    Holt is emphatic about the transformation of the printing industry. “Printing must be approached as a manufacturing process, not as a craft. We have already moved away from individually customized and crafted products, restricted to a select few professional buyers, to a mass market of casual purchasers who view printed products the same way they view any other commodity. True – a printed piece is still a custom product – but the customization is more and more embedded in the content of the piece and not in the manufacturing of it,” he says.

    For Holt, printers that do not embrace the new technology that is becoming necessary in today’s market will be left behind.

    “Printers who refuse to recognize this paradigm shift – no matter how big – are doomed to fail, as was GEON,” he says. “Even though they finally integrated Metrix into their production apparatus, replacing Kodak UpFront and Preps and reporting incredible ROI and efficiency gains, it was too late.

    “Besides, that alone wasn’t enough. They didn’t change their business processes enough to keep up with the way the print business was changing. On the other hand, some believe everything is going digital and personalized, so they focus strictly on the iron in the pressroom. But offset can be incredibly profitable – as long as it is not done the way it used to be done,” he says.

    To highlight his argument for the potential profitability of offset, Holt says: “Andy Tribute recently came out of retirement specifically to write an article titled ‘Offset – Technology for the Future of USA’s Printing!’ In it, he links web to print, offset, and Metrix, and mentions a German gang printing customer ‘with multiple VLF presses and a web-to-print front end [who] reportedly has executed 500 make-readies for a total of 12,000 jobs in a single day’.

    “Tribute emphasizes that the ‘revenue and profit that this offset approach can give is vastly more than can be done with any digital printing technology’,” says Holt. “This is what I’ve been saying since 2004. I feel like a broken record, but also feel compelled to continue driving home the point, lest more colleagues lose their jobs when great printing companies go under. Though the demise of GEON is very sad, I suppose there is a silver lining for the survivors, in that a lot of new work will be up for grabs.

    “My hope is that GEON’s failure has shaken up the ‘business as usual’ mindset, and that the survivors will step back and look at their businesses objectively and determine to manufacture smarter. It may require a cultural shift, which takes decisive leadership. But even ganging one or two jobs per week and saving those few extra make-readies and plates can make a huge difference over the long haul,” he says.

    Holt says he would like to encourage everyone to go to the Mateix website:, to listen to the interview with Jim Aust, ex-Kodak ROI guru.

    “Having spent 40 years in the industry, the bulk of that as an ROI analyst, and having studied over 2000 printing companies, I think you can take Jim’s analysis very seriously,” says Holt. “I’d also like to invite anyone attending PacPrint to come by the Fujifilm Australia stand, #1200, to see Metrix for yourself.”

  • Geon today, gone tomorrow – Print21 Magazine article

    The long-running saga of Geon, once the biggest offset sheetfed printer in the region, is nearing its end. As the dust starts to settle after a tumultuous couple of months, Simon Enticknap looks back at the genesis of this ambitious project to reshape the industry and examines the fall-out from its collapse.

    The end, when it came, was quick. After eight years under private equity management, during which time many observers wondered how long it could survive, the final Geon death throes lasted just a matter of weeks.

    The company’s private equity backers, Gresham, finally walked away at the beginning of February when it handed control of the company over to KKR/Allegro private equity investors which had earlier acquired $80 million of Geon debt from Lloyds International. At first there was talk of restructuring and turning the business around but after less than a fortnight, the new owners had called in the receivers. Almost immediately, the dismantling of the Geon group began in earnest.

    First to go was the Christchurch-based Kiwi Labels business, which went to Blue Star NZ, itself recently returned from private equity ownership into the arms of former owner, Tom Sturgess. Then Geon’s NSW and Victorian operations went to Blue Star Australia under Geoff Selig who acquired the former Geon Banksmeadow and Parramatta sites in NSW, as well as its Mt. Waverley site in Victoria. These sites were immediately earmarked for closure with a “meaningful number” of Geon employees being offered positions at Blue Star.

    Tom Sturgess came back for more 10 days later when Blue Star Group NZ picked up the remaining Geon assets in New Zealand with 50 former Geon workers being offered positions at Blue Star; another 185 former staff missed out.

    By mid-March, Geon Perth was looking to go it alone by means of a management buy-out and then, a few days later, Geon’s Tasmanian assets reverted to their former identity, Mercury Walch, under the ownership of the Todisco family. That just left the Queensland operations which failed to find a buyer and were closed down, the Eagle Farm site quickly being listed for sale or lease.

    And that was that. Before you knew it, the waters had closed over Geon’s head and the region’s largest sheetfed printer was no more. All that remains is for those staff and suppliers left behind as the ship went down to see what they can salvage from the wreckage.

    The industry has seen some hard times in recent years – great companies gone, some of whom it was almost unfathomable to believe could go out of business – but perhaps nothing matches the trauma of the past couple of months.

    Pain and sorrow

    When news of the receivership first broke, the response from the industry was swift and unrelenting. No story on the Print21 website has ever generated so much impassioned comment. The level of industry-wide anger was palpable, mixed with a certain degree of schadenfreude and genuine sympathy for the many Geon workers facing an uncertain future.

    “Poor staff – it’s time these PE types go gamble with their own money. Total grubs! They burn lives, then just happily move on to the next job leaving destruction in their wake. They deserve punishment,” responded ‘Ink Farmer’.

    “Heart goes out to the employees and suppliers. This is a private equity chess move, in order to eliminate KKR’s obligations,” said ‘Rotten at the start’.

    “It was those in charge that are responsible and they should be made to pay… how many families are left pondering how they will pay next week’s mortgage or feed their kids,” added Loz.

    Others responded by reflecting on the changes wrought on the industry over the past decade. Theo Pettaras at Digitalpress, for example, paid tribute to the legacy of Geon’s predecessors:

    “Let’s at least take this opportunity to remember that Geon, previously known as Penfold Buscombe, was a printing company with a history in the printing industry dating back to 1865! Vicprint, Concord Corporate Communications, David J File Printers, Inkolour, Mockridge Bulmer, Prestige Plates, RT Kelly, Southport Printing, URI Printing, Pot Still Press and of course Websdale Printing were all well-known, respected printing companies that were included in the group’s portfolio of printing companies.

    “Those of us old enough to remember some of these companies would agree that they played a very important role in employing and training tens of thousands of people and making a significant contribution to the craft of printing.”

    Much of the criticism voiced was directed at the private equity owners and the management team which was widely perceived as having no understanding of how the print industry works. Special condemnation was reserved for Geon’s managers who jumped ship to positions with new owners while leaving employees to fend for themselves. The resulting sense of betrayal and outrage was white-hot.

    And whilst nobody seemed surprised at what had eventuated, many expressed a hope that Geon’s demise would see a return to sane pricing policies in the industry.

    “A current printer working in Perth, the prices have to rise because the way things stand at the minute everybody’s getting screwed. Quality at a decent price I reckon…” commented Buster.

    The disconnect

    Over the six years that Geon was in existence, there was always a strange disconnect between its public and private personae. Publicly, the announcements were all about building a ‘world class’ printing company with ‘sustainable’ manufacturing sites dotted around the country. Even as late in the game as last September, when the company was asking its staff to reduce labour costs, this was presented as part of its “commitment to building a sustainable business model for the future”.

    “Our focus is keeping Geon in the strongest position for the future,” said CEO Graham Morgan at the time. “We have reduced our debt significantly, reduced cost from the business across site mergers, reduced management layers, streamlined processes and now we are working with our employees on reducing the cost of labour through flexibility and open dialogue.”

    The talk was all about building a business for the ‘long-term’ based on the model of a nationwide, integrated production network. And there’s no doubt, too, that the company did produce some good work over the years, a testament to the skill and dedication of the staff it inherited from the various companies absorbed. It was a consistent winner at print competitions on both sides of the Tasman.

    Away from the public utterances though, it was always difficult to see how the company could survive under the burden of so much debt. It didn’t matter how successful it was, how much revenue it generated, how much quality print it produced or new customers it gained, it was never going to emerge from beneath the mountain of imposed debt. Something had to give; either the debt goes or the company does.

    For its part, Gresham had shown that while it was capable of producing successful turnarounds in some cases, it was also not afraid to close down businesses if necessary, as it did with boat builder, Riviera, which collapsed in 2009 with debts of over $300 million.

    The intervention of the GFC didn’t help. It’s a moot point as to how many of those businesses taken over by Pacific Print Group and then Geon would have survived one of the worst industry downturns in recent history. While they might have fared better, it’s hard to believe there would have been no casualties; plenty of well-known names have gone to the wall over the past few years. In the eyes of many people involved in the company though, the situation at Geon was compounded by bad management decisions and the loss of experienced talent and industry know-how at precisely the moment when it was needed most urgently.

    Some viewed this as evidence of the private equity financiers’ inability to understand what was unique and specific to running a printing business, what made it different to managing other manufacturing concerns. There may be some truth in that view but it presupposes that the goals of private equity are the same as most other enterprises, namely to build a ‘sustainable’ business, to earn money from making and selling things. That’s not necessarily the case.

    The collapse of Geon is not an indictment of the ‘failure’ of private equity because the business model it holds to is not the same as everybody else’s. Private equity plays by a different set of rules.

    The bust out

    There’s an episode of the TV series The Sopranos in which Tony Soprano and the gang take over a sporting goods store after the owner gets into debt with them. Not surprisingly, Tony has no intention of becoming a shopkeeper. Over the coming days and weeks, he and his cronies systematically strip the store like locusts, running up huge debts and selling off the stock at less than cost price (sound familiar?) until eventually the credit dries up.

    At one point, the exasperated store owner asks Tony what he’s doing, why he is deliberately running down a good business. “This is how a guy like me makes his living,” says Tony, referring to the old fable of the frog and the scorpion. “This is my bread and butter.”

    Finally, with the business on the point of collapse, the owner, drunk, desperate and suicidal, asks Tony Soprano how it will to end. “The end?” replies Tony. “It’s planned bankruptcy.”

    During the last US presidential election campaign, the Huffington Post made the same analogy between the modus operandi of private equity groups and Tony Soprano in reference to Republican candidate Mitt Romney’s history with private equity mob, Bain Capital. In the US, Bain has a reputation for buying up companies, loading them up with debt to extract higher dividends and then allowing them to go bankrupt. Romney’s attitude was exemplified by his opposition to any government bail-out of the US auto industry, commenting that “these companies need to go through a managed bankruptcy” as if going bankrupt is simply another form of re-branding.

    The point is that, for private equity investors, bankruptcy is not necessarily indicative of business failure; it is a strategy for getting rid of debt and cutting costs. At least Tony Soprano was capable of empathising with his victims.

    Sitting pretty

    In much the same vein, some of the commentary about the collapse of Geon has highlighted how much money has been lost by the private equity backers since Gresham bought out the former Pacific Print Group in 2005 and then upped the ante by buying Promentum for $127 million. How could they have been so misguided?

    It is true that Gresham Partners, the holding company behind Gresham Private Equity, did make a loss last year, perhaps the first since it was founded in 1985. It lost just a smidgin over $1 million. That was mainly because its fee income fell to $46 million over the year, down from $55 million the previous year. In fact, over the years while Geon floundered, the fees earned by Gresham Partners remained fairly consistent, reaching $64 million in 2009 in the wake of the GFC.

    Not all the fees earned by Gresham Partners come from its private equity operations and it is true that Gresham Private Equity has suffered bigger losses in recent years. For instance, last year, Wesfarmers, the giant conglomerate which owns Coles supermarkets as well as having a 50 per cent stake in Gresham Partners, recorded a loss of $55 million on its investment in Gresham Private Equity Funds due to “downward non-cash revaluations following a difficult year for some of the funds trading businesses”. That followed a $60 million loss on the same funds, also due to “downward non-cash revaluations” etc, in 2011, as well as another $57 million loss in 2009.

    Over the years, Wesfarmers has lost tens of millions of dollars from investing in Gresham Private Equity while continuing to inject funds into it. The division at Wesfarmers of which Gresham forms a part is the only one to consistently record negative earnings over the past few years. So why would a massively successful company such as Wesframers keep funding an apparent lame duck?

    Well, Wesfarmers itself made a profit after tax last year of over $2.1 billion, up 10.6 per cent on the previous year, so any losses it has sustained from Gresham Private Equity are flea bites in comparison. In effect, Wesfarmers has been bank-rolling Gresham’s private equity losses out of the huge profits it is making on its supermarkets and chain stores. Food for thought the next time you go shopping for cheap milk.

    Moreover, James Graham AM, founder and director of Gresham, who still has a controlling interest in the other half of Gresham Partners not owned by Wesfarmers, also sits on the board of Wesfarmers with a shareholding worth over $30 million. So the company of which he is a board member and shareholder is investing in and carrying losses sustained by the private equity arm of the company of which he is co-owner.

    All this is perfectly fine and dandy. There’s nothing untoward about it at all, so long as any potential conflicts of interest are made known. But it does give the lie to the notion that the principals associated with Gresham received a bloody nose with the collapse of Geon and were forced to retreat from the printing industry, tails between legs. Far from it. For the private equity fee-earners, it’s just business as usual.

    The biggest losers

    Inevitably where there are winners, there are losers too. The banks that provided the finance for the Geon roll-up –BOS/Lloyds International – were forced to sell off their debt at a massive discount so, in dollar terms, they are the biggest losers. Equally though, given that the Lloyds bank group is 40 per cent owned by the UK government following its £20 billion bail-out in 2008, the ultimate losers are the British taxpayers, a good example of ‘privatising the gains and socialising the losses’.

    Locally, there are hundreds of staff, many with years of service with Geon and its predecessors, who now find themselves out of work. They not only lost their jobs but also their entitlements, having to rely on the Federal Government GEERS scheme to pick up the pieces. They still won’t get their long service entitlements. Inevitably a lot of expertise will be lost to the industry for good. Likewise, there are hundreds of smaller creditors, not just the paper companies but also contractors and trade printers, who in all likelihood will see nothing for their labours and will be left to carry the burden of debt. The ripple effect throughout the industry will continue to be felt for some time to come.

    More generally, another casualty – at least for a while – is the notion of the ‘roll-up’. Back in 2006, when the private equity players were making their audacious bids to buy up printing companies like schoolboys collecting stamps, there was talk about how the future of the industry would belong to just a few mega-printers. Gordon Towell, former CEO of Geon, told Print21 in February 2008 that, in the future, “there will be only four major printing companies in the region”. With the benefit of hindsight such talk seems ludicrously far-fetched, but it is indicative of the prevailing mindset at the time. In many ways it was a response to the fragmentation of the industry and the ongoing problems of over-capacity.

    In the last issue of Print21, Andy McCourt gave a roll-call of all the printing companies that have disappeared due to private equity acquisition over the past few years. The current dismemberment of Geon’s remains may see some of these businesses resurrected, albeit in a different form, but it also sees the process of consolidation through to its logical conclusion. The end result is that there will be fewer sheetfed offset printing companies in the region from now on and the likelihood is that none will ever aspire to provide a networked nationwide footprint.

    It is true that many older print companies have gone but it is equally true that there are now a lot more new, re-fashioned companies, many employing technology that wasn’t even invented back when Gresham entered the fray. Indeed, as Andy McCourt points out in this issue (p65), there are many graphics-based businesses that are not even regarded as ‘printers’ as such, even though they are at the cutting edge of what printing technology today can achieve. The perception of what a ‘printer’ is lags behind the reality of the transformation that has taken place.

    In that light, the Geon experiment looks like a response to an industry-view that is already out-of-date – one based on large-scale manufacturing of sheetfed offset print – when in fact the industry has been heading a different direction altogether – digital, specialised, localised and service-based.

    There are lots of lines being drawn under the Geon business at the moment and perhaps collectively it’s time for the industry to do the same. Now that the big private equity players have departed the scene for the time being, everybody can get on with doing what they do best – making great printed communications and earning decent money for doing so.

    From a personal point of view, I’ll just be glad I never have to write that idiotic ‘G’ word ever again.

  • GEON Brisbane site on the market

    GEON’s former Brisbane site is on the market following the print group’s demise in February, with the industrial property put up for sale or lease this week by Queensland’s Wright Property Group.

    The Eagle Farm property was left unoccupied following GEON’s collapse in February – which has reportedly left around $15 million in debt to hundreds of creditors. The site shut down operations in March and its assets and employees subsequently shown the door.

    Unlike many of GEON’s other operations that were either sold off or bought-out, the failed print group’s receivers at McGrathNicol were unable to secure a buyer for the Brisbane Eagle Farm business.

    GEON occupied the site under a lease arrangement. It is believed the 18,460 square-metre property is under the ownership of Tony Scanlon – part owner of the Brisbane Broncos – and former head of Scanlon Printing, which was acquired by Promentum in 2006, prior to GEON’s acquisition of both companies in 2007.

    Wright Property Group placed an insert (pictured) in the Australian Financial Review newspaper on 11 April to promote the new listing for either sale or lease.

    According to Wright Property the riverfront site’s warehouse and offices comprise 8,692 square metres, while the property as a whole comes to 18,460 square metres with an onsite car park for 80 vehicles.

    The listing does not include an estimated price or value for the property.

  • ‘Phoenix’ laws under the microscope – Andy McCourt’s Reverb

    In a timely supplement to last week’s Reverb article, Andy McCourt (pictured) looks at the growing attention being directed at the sort of laws that allowed February’s GEON receivership and legal debt nullification, with a British parliamentary review tackling ‘pre-pack’ provisions.

    A Parliamentary Committee in the UK will conduct a thorough review of the abuse of pre-packed administrations in late Northern Spring, it was has reported that by a leading UK publication, Accountancy Live.

    It was reported in Print21 on 25 February that the KKRM attempt at placing GEON into administration and then buying all or some of it back from the receivers was a UK/US-style debt-wiping ‘pre-pack.’ It would now appear that legislation in the country that allowed pre-packs to flourish from the 2002 Enterprise Act, is now back-tracking due to massive abuse of the administration process.

    Pre-packs have never been a prominent feature in ANZ insolvency practice, but the net effect has undoubtedly been achieved in the past, by using DOCAs -Deeds Of Company Arrangement. Not all pre-packs per se are negative; if properly conducted in consultation with creditors and other stakeholders, they can constructively save companies and preserve jobs. However, the temptation to totally wipe out due debts and staff entitlements and start afresh has, more often than not, proved too great for the pre-packers (some would say ‘phoenixers’).

    In halting the KKRM-GEON pre-pack, Australia and New Zealand have established a landmark case for any future attempts both within and without the printing industry. With GEON, all the hallmarks of a pre-pack that would return little to creditors but make large sums for KKRM were apparent:

    • KKRM was asked to provide emergency funding, reportedly $3 million, to keep GEON trading in February. It was declined.
    • KKRM was in possession of a debt of approximately $92 million it had acquired at a heavy discount from bankers.
    • KKRM as senior secured creditor called in the receivers to GEON Group companies, and followed this with an offer of repurchase.
    • KKRM declined to pay past due GEON debts to paper suppliers in order to secure on-going paper supply. If these debts had been paid or guaranteed, paper supply would have been forthcoming.
    • In post pre-pack failure comments, KKRM has indicated that, had it succeeded, plant closures and job losses would still have been implemented

    Lord Younger, in announcing the review to the House of Lords on 13 March said:

    “On the review issue surrounding continuation of supply to insolvent businesses, this is now the subject of a government amendment being debated shortly. We propose to consult on the issue prior to implementing reforms and I am satisfied that this will address the concerns in this area.”

    KKRM via its Australian partner Allegro Funds was asked a series of questions to contribute to this article but has offered “no comment” to all.

    The complete announcement from Accountancy Live can be read here.

  • Lessons from the train wreck – James Cryer on the GEON collapse

    James Cryer of JDA Print Recruitment – and local print industry gadfly – analyses the GEON Group’s fall from grace of the PE brigade in his usual (un)-subtle manner.

    GEON finally succeeded – during its death throws – to achieve what many of us had always wanted to do but failed: to put print on the front page of the mainstream media.

    But it was for all the wrong reasons, as the GEON debacle was broadcast to the world at large last Friday, on ABC’s primetime six o’clock news. In it (and we can only hope young kiddies were having their bath) we were told how “more than 650 workers now expect to be retrenched” and that Workplace Minister, Bill Shorten was prompted “to intervene to guarantee GEON staff early access to their entitlements.”

    So here we have hundreds of printing employees thrown out of a job and doubt is cast over the payment of the former employees’ entitlements. Not a good look for any young person contemplating a career in print!

    This is a far cry from the clarion call, which announced – with great fanfare – the arrival of the private-equity posse over the horizon, back in 2007.

    GEON – according to its own self-promotional brochure, which I have in my possession, was touted as ‘bringing vision to life’ – and ‘maximising potential and ensuring excellence in everything we do, through print and communication solutions’.

    Noble sentiments.

    Further perusal of its brochure is instructive as it proclaims that ‘GEON will deliver to our customers’ (sic) holistic and innovative print and communications solutions by adopting leading edge technologies, applying lean operations and engaging the best people.’

    That may have been GEON’s first mistake, hiring someone to write such drivel – and second, it’s a reminder that words can be cheap.

    If I may be permitted to make some observations – lessons perhaps in how NOT to run a printing company:

    First, on the matter of ‘engaging the best people’ – I’m not sure about the best, but they certainly employed a lot! Of managers, that is. Every month one would read of some manager or other (often with a fancy title like ‘Northern Region Strategic & Operational Process Improvement Manager’) either coming or going, to the point where I used to wonder if the big tin shed actually contained any workers or was simply a grazing paddock for managers who would simply munch on the grass before being put out to pasture elsewhere.

    Second: workflow. As Frank Romano once famously said ‘Workflow is everything’. Geon fell into the trap of quoting much of its work as part of its ‘contract pricing’ i.e., the client agrees to give them this amount of print for that unit price. But clients rarely keep their side of the bargain – the quantity may fall shy, or the number of changes is more than what was bargained for – or the allowance for disruptive emergency jobs is underestimated – or all of the above.

    There was a constant stream of anecdotal evidence that GEON had not ‘mastered’ its workflow (not helped by its grappling with different software systems). But the truth is: ours is a messy business. It’s full of disruptive events because it’s a highly intensive ‘batch-processing’ manufacturing model which requires a high level of customised attention for each job, and a generous amount of ‘excess capacity’ built into the system to act as a buffer.

    GEON could have either offered skinny margins and manage a seamless workflow – or raise the price and accept that there is no such thing!

    Third, on this point of managing workflow: I’m convinced (although I can’t prove it!) that there’s an optimal size for a printing company. My guess is between 50 and 150 people – anything larger invites a dysfunctional relationship between sub-groups and creates unwieldy management of information. In a high-pressure, bespoke print operation, people need face-to-face connectivity to iron out the bugs before they arise. One got the impression that GEON was too large to permit these tight-knit interactions.

    The fact that these groups were drawn from previously competing ‘tribes’ with different dynamics and cultures did not help!

    Fourth: they were always on the nose as ‘outsiders’ who showed no long-term commitment to the industry. Apart from persisting with unsustainable pricing the backroom boys never bought another printing company, even though prices had plummeted since their original ill-timed foray.

    Fifth: Geon was perceived, rightly or wrongly, as the class bully who had a rich uncle. It could throw its weight around – i.e., quote at unsustainable levels, not because it enjoyed a lower cost-base – but because the ‘unseen hand’ of the PE monster was embarking on a ‘market-share-at-any-cost’ strategy.

    And finally, the take-home lesson for us all is that, for any commercial enterprise to succeed, its owners must have ‘skin in the game’ – and not be absentee landlords. Those original owners (who sold their businesses) were old-fashioned, unsophisticated and probably didn’t have a string of business degrees after their name. But they knew the names of all their employees and their kids – and probably what their kids had for breakfast.

    Over a century ago in 1893, an Australian, William Lane, took 238 people (a similar number to the staff at Banksmeadow) to the wilds of the Paraguayan jungles to start a bold new society based on noble sentiments but flawed assumptions. If only the PE gnomes would have read about William Lane and his short-lived “utopia” they could have avoided this bloodbath.

    The message from the train-wreck is: lean and mean beats big and fat.

    My thoughts go out to those expendable collateral – those workers who poured so much of their own blood, sweat and tears into the ‘experiment that failed’. The great injustice is that the perpetrators – will probably just lick their wounds and try again.

    To read Cryer’s modern GEON-inspired lyrical take on the classic poem ‘The Spider and the Fly’, click here.

  • After the fall: GEON – Andy McCourt’s Reverb

    In the aftermath of the GEON collapse and the ongoing developments seeing parts of the group sold off and other parts shut down, Print21‘s Andy McCourt (pictured), investigates the increasingly complex series of events surrounding the failed print group’s demise and lays it out plain and clear for all to see.

    The outpouring of grief, disappointment and outrage over the situation with Geon and its group of companies, shows no sign of abating. For displaced staff, the injury is being compounded by the insult of not having separation certificates issued and being told to register with FEG/GEERS for any hope of a portion of their entitlements. This is a dark time indeed in the history of the printing industry, industrial relations and insolvency practice. Put another way, it’s a diabolical disgrace.

    I knew and did business with several of the business owners whose firms subsequently formed the agglomerated Geon group. Don Elliot (Agency Printing) has already aired his disgust publicly and questioned how a very profitable business can be handed over to new management who so swiftly destroyed all the value. The Van Weeren family of Dynamic Press, which suffered the tragic early death of its heir apparent and my friend Ray, would have to be one of the most successful family-run mid-size printers ever. Hard-nosed to do business with and demanding to work for, but committed to maintaining secure employment in a family atmosphere.

    The late Ron Hoolihan of Graphic World can not speak for himself so I will try: he’ll be turning in his grave. I am told on reliable authority that another printer who sold to Geon/Gresham wept openly when news of his former business’s closure and sacking of staff was announced.

    So, how do these MBA and CPA-endowed wunderkinds of the financial world manage to raze-to-the-ground and trample upon a collection of good businesses that were once the pride and joy of family owners, highly profitable, tolerable employers and so attractive that they were bought for good sums? Is there a post-graduate course in blithering idiocy for some MBA-PE types?

    The pride that existed on the pressroom and bindery floors of these once great businesses never went away. This was the human capital that the likes of Geon and the ‘old’ Blue Star were fortunate to inherit. The private-equity backed owners played it to the hilt, citing all the usual corporate platitudes of ‘loyalty’ and ‘people are our greatest asset’ and ‘proud to be a member of such a great team’ – before turning on them like a cobra striking at its prey and then severing all the lifelines that might offer hope. “Don’t be evil” is Google’s motto; theirs may well have been: “Be evil.” Having acquired once proud businesses and staff who took great pride in their work, all that this particular branch of private equity management could deliver was false security.

    Lulled by corporate mission statements and platitudes; mind-numbed by banal work practices requiring skilled press operators to stop printing while they swept the floor, kept yellow lines bright and the old lie ‘people are our greatest asset’ – savvier Geon staffers just quit, while those with fewer choices stayed in a place that, according to some, seemed to take on all the characteristics of Orwell’s dystopian 1984 – complete with Proles, Newspeak and Thought Police. Not to mention a Big Brother.


    Then there’s the renaming – Geon – it’s what a great industry friend, now retired, would call ‘an exercise in applied wankmanship.’ The more academically inclined might call it epistemological solipsism, but ‘applied wankmanship’ will do. Geon: – do you know what it means? There are three possible meanings, all of them apposite to the press-wreck we have witnessed. A Geon can be a theoretical object or shape corresponding to ‘Biederman’s Recognition-by-Components Theory’ – is that clear? In Physics, a Geon can also be a theoretical electromagnetic or gravitational wave held together solely by its own energy field. In Geology; it’s a long, long extinct time period such as Jurassic and Mesozoic.

    Not only did Geon, under Gordon Towell’s  CEO watch, choose an appalling name to replace the more logical Pacific Print Group, but it then, under Graham Morgan’s watch, ‘refreshed’ the brand mere weeks before disappearing up its own Geon. This makes Nero look like a brave firefighter in ancient Rome.

    Destroying brand value, profits, jobs and reputations has many faces but the most prominent one I can see in all this is: greed – closely followed by incompetence. Becoming wealthy is not necessarily an essential by-product of greed. Some people can create fortunes by just being honest with themselves and others – Warren Buffet for example; Bill Gates is another. Even our own Kerry Packer was unfairly charged with being greed-driven; I think he was more achievement-driven and hyper-competitive; like Dick Smith, another example.

    No, the greed that has driven Geon to where it is now is all the corrosive, amoral, lying, exploiting and manipulative kind of greed that betrays its own needs and wants. Gresham Private equity thought it could make a massive return for its #2 Fund by loading Geon up with debt, leeching all the value out of it and selling it off like discarded old wife – for just $1: ONE DOLLAR!! according to the AFR’s ‘Street Talk’ columnist Anthony Macdonald. KKRM saw that it could buy Geon’s (and other) debts at a huge discount but claim back the full amount by use of a dextrous piece of corporate chicanery whereby anyone owed unsecured money – including staff – by Geon would suddenly be cast into a mire-filled ditch of unrecoverable bills and claims. If anyone believes that the asset sale followed by liquidation of Geon will realize more than the $92 million it owes to KKRM, the Tooth Fairy will visit you at 5am tomorrow.


    It’s not just the big debts to paper companies, the ATO and staff entitlements that should worry us. Geon dealt with scores of smaller suppliers, contractors and service providers.

    With an estimated $120 million of debt – $92 million of which is KKRM’s secured amount purchased for much less than half of that from Lloyds/BOSI; it is easy to focus on big unsecured creditors. However, the hurt drills down deep into our industry with dozens of small suppliers and contractors, such as David Crowther’s  Colour Graphic Services who provided ISO 12647 implementation, uniting and certification services to GEON.

    Crowther notes: “I’m not saying what we are owed but it is a very significant amount for a small service business like ours. We deliver a very high level of personalised technical support and training which makes it all the more painful when that goes unpaid for. I have made a lot of close working relationships with GEON staff, and even have a few close friends that I have known for over 35 years. Yes I have been hit hard, but there is always someone worse off than yourself and I really feel for those struggling with a family, mortgage and wondering where there next pay check is coming from.

    “For me I like to take a positive outlook and not to dwell on the past. There is still a number of high quality, well run printing businesses that I deal with day to day, so it is head down still doing the best I can to deliver what I believe is the regions best colour quality systems support,” he says, just one example of many.

    As these smaller creditors seek to re-engineer their businesses to cope with cash losses, they themselves may struggle to meet their obligations. Some will survive – usually by mortgaging personal property – but some will fall by the wayside in a sad but inevitable knock-on effect as certain as tsunamis follow deep sea earthquakes. Most of these will go unreported as the Geon debacle winds down.


    And winding down it is; we are nearing the final round of asset sales prior to the March 25th, or thereabouts, second creditors meeting. McGrathNicol, on both sides of the Tasman, are furtively seeking buyers.

    Andrew Grenfell and William Black of McGrathNicol NZ, in response to my questions on Geon’s NZ operations including the world-class Highbrook supersite have said:

    “(We) are pleased to confirm that offers were received by the deadline of Friday 8 March 2013. The receivers are currently working through those offers. As negotiations have not yet completed the receivers cannot comment further at this time.”

    With yesterday’s news that wages will continue to be paid by the receivers until the end of this week, things are looking better for some of our Kiwi friends than they are this side of the ditch, unless you are one of the unfortunate ones to have already lost their jobs, courtesy of the receiver.

    The GEON administrators, PPB Associates, are there to administer the assets of the business because the directors believed the company was, or risked becoming, insolvent. Sources close to PPBA are at pains to point out that it is the receivers, McGrathNicol, and not PPBA who have the necessary employee information to issue separation certificates and advise asset purchasers such as Blue Star on how to contact staff to whom they wish to offer re-employment.

    PPBA does however have a role to play in the availability of the Fair Entitlement Guarantee (FEG: formerly GEERS) to ex-Geon staff. They are working closely with both FEG and McGrathNicol to determine the best outcomes. For employee entitlements to be paid from Geon receivables, there must be a surplus from the realized ‘circulation assets’ i.e. debtors, cash-at-bank and non fixed-asset incomes. First dibs go to the administration and receiver’s fees, then staff entitlements. For fixed assets (presses, property etc), the secured creditor KKRM comes ahead of staff, so there is little hope there of a surplus.

    McGrathNicol is highly respected  in the insolvency world with several high-profile receiverships and liquidations either under their belt or in progress such as ABC Learning Centres, Allco Finance, Banksia Securities, Harris Scarfe and the infamous HIH Insurance to name but a few.  Like all registered receivers, they must declare independence and impartiality in any receivership or liquidation.

    Receivers’ and administrators’ fees often come in for criticism and they are certainly high, with a Senior Partner charged at anything up to $700 per hour and even a junior admin assistant at $160. The hours for multiple associates can mount up to a frightening level; PPBA disclosed their estimated costs for the first six days alone of the Geon administration at around $100,000, before McGrathNicol’s fees.

    Receivers and administrators pay themselves first ahead of all other creditors. When you consider the risk they take in guaranteeing wages and debts during the administration, this is understandable but can sometimes result in all surplus recovered assets being used to pay fees. I know this from experience; I was once owed a paltry $3,500 by a company placed into liquidation. I optimistically put my claim in with the receivers, only to be informed a few weeks later that there was no surplus as all the recovered monies had gone in fees and the company was 100% liquidated.


    So, the best hope for staff entitlements is that McGrathNicol can wrap this one up fast, keep fees down and leave some money left over from circulating assets (there is an ASIC formula for calculating the percentage of their fees attributed to circulating/floating and fixed assets). At this stage, no one knows, and in the meantime they have fired workers on both sides of the Tasman to keep their wage bill under control.

    Receivers and liquidators are all-powerful; the Kings of the jungle in the corporate menagerie. They have teams of forensic accountants to go after the money and if they find illicit goings on, must report these to ASIC who can and have, as in the case of HIH (Ray Williams and Rodney Adler), prosecuted and put perpetrators in gaol. They are the fiscal waste collection and recycling service for businesses; an essential service that cleans up other people’s mess and attempts to return distilled purity to the market. Sadly, there is always collateral damage and that means individuals and families. Insolvency Law is currently under Treasury review with the Insolvency Law Reform Bill, and none too soon.

    It is heartbreaking to read some of the ex-Geon employee and smaller supplier comments on this forum. The spin and disinformation fed to them appears to have continued right up to Geon’s last breath, creating the false sense of security. Even the AMWU was ‘Of the view that this was a very viable company.’

    For many of the proud and highly skilled staff of Geon, everything will be too late but the hope on the horizon is that the new houses of Blue Star/Wolsely/Selig in Australia and Blue Star/Mercury/Sturgess in NZ are built on much more solid foundations with industry-knowledgeable heads, a firm capital base and realistic expectations of returns.

    The pride of members of the ANZ printing workforce is immortal: – the false security engendered by Geon Group is already smouldering in the dust of decay and putrefaction.

    McGrathNicol Australia and KKRM via Allegro Funds were invited to answer a series of questions for this article but at time of completing, have not done so. Thanks to PPBA and McGrathNicol NZ for their input.

  • JDA Print Recruitment extends a ‘geonerous’ helping hand

    James Cryer of JDA Print Recruitment is extending a professional helping hand to print and graphic arts employees in the local market who may have been affected in the past month’s industry movements.

    In a release, Cryer said:

    “JDA is helping to bridge the “Geoneration Gap”.

    “Proving that not all recruiters are created equal, JDA has dipped into the eternal well-spring of ‘geonerosity’ and has agreed to provide free careers guidance and counselling to anyone currently experiencing, shall we say … ‘vocational uncertitude.’

    “The offer is unconditional, and applies to staff with ANY large offset printing company located in the Botany region.

    “While not geonerally providing such services, JDA realises that in times of need everyone should man the pumps and offer assistance.

    “Such assistance would include –

    • ·         resume preparation,
    • ·         how to write a compelling cover letter,
    • ·         how to prepare for job interviews – and importantly,
    • ·         a discussion of what job opportunities are out there.”

    Cryer says he invites anyone – both ladies and ‘geontlemen’ – who feel disaffected or who otherwise unloved, to contact him for an obligation-free discussion of industry options, on 0408 291 508.

    As a further attempt to boost employment opportunities, any such candidates would be placed at HALF the normal placement fees. So, employers interested in seeking, good, hard-working, well-trained staff are welcomed to enquire about these ‘new geoneration’ candidates – available at half-price.

    Contact James Cryer on 0408 291 508 or visit:

  • GEON – It’s a Pre-Pack! Andy McCourt’s ReVerb

    Shock, emotion, uncertainty, anger and vitriol have reverberated around our industry since the announcement of GEON’s administration followed by receivership. In the midst of this, logic and reality appear to have taken the back seat. Print21’s Andy McCourt (pictured) takes a closer look at the situation.

    The term ‘Pre-Pack’ may not be widely used here but it is well known in the UK, particularly in the printing industry. In simplest of terms, a Pre-Pack administration is one where the directors have already made a deal with the administrators and receivers before placing a company into CVA (Company Voluntary Administration). The deal of course is to buy all or part of the company‘s assets back and continue business under a new name or a slightly changed version of the old name (e.g. XYZ (2013) Pty Ltd).

    Changes in 2002 to UK law, known as the Enterprise Act, made Pre-Packs legally achievable over the more dubious practice of Phoenixing. Predictably, there has been an avalanche of unpopular Pre-Packs since then. Australian law has never embraced the concept of Pre-Packs but there is no doubt the practice exists here in process if not name – click here for details.

    Corporate Law firm DLA Piper notes:

    “Despite all of the impediments outlined above, pre-pack transactions have been successfully implemented in Australia by way of a receivership sale of assets or a restructuring and trade-on through a Deed of Company Arrangement.” The full article can be seen here.

    So, a rose by any other name smells as sweet and it is possible that KKR/Allegro (KKRM) are using gray areas of Australian corporate law to achieve a Pre-Pack outcome at GEON. Incidentally, the M in KKRM stands for ‘McKeller’ after the project name to acquire the distressed debt from Lloyds and BOSI. It’s after our poet Dorothea McKellar, ironically, who wrote ‘My Country’. Insolvency law has been under review by government committees for some time. There appears to be a dire recognition for the need to change, but a distinct lack of strategy and policy to achieve it. See my column from April 2010 here.

    The June 2012 Act known as the Tax Laws Amendments Measures have been reported elsewhere to make illegal ‘Phoenexing’ to avoid PAYG tax and Superannuation Guarantee Levy payment obligations, with directors supposedly personally liable for Tax and SGL. However, first ‘Phoenixing’ must be proven and any country town solicitor would be able to challenge that. All it needs is a new company name and anyway, directors with less than 12 months service are not liable.

    This means, if any of the KKRM executives have taken or will take on directorships of GEON (currently only Samford Maier and Jack Crumlin are listed as directors), they are not liable under the Act. Speaking of Jack Crumlin, he is a partner in Norton Crumlin Associates of North Sydney, who still have the (pictured) proud boast on their website about helping Gresham and GEON. Just how is ‘success’ defined in your world, Jack? Anyway, GEON is being groomed for a Pre-Pack, not Phoenixing because Phoenixing is naughty and possibly illegal.

    Why Pre-Pack? This is the simplest question to answer. It wipes out all debt and yet leaves the assets of the concern in the hands of the former owners for a fresh start. It’s a dream process for the owners, a nightmare for creditors – unless as the owner, you are also the most senior secured creditor and your ‘debt’ suddenly becomes equity in a business with plenty of assets but no liabilities.

    It is still possible that KKRM might be ‘gazumped’ that is that the Receivers might receive a higher offer from a third party and they are legally required to consider all the best outcomes for the business. If this happens, KKRM still win as any proceeds from the sale, less fees, would go to them in majority.

    This is how the growing world of private equity works. The degree of financial and legal sophistication is light years ahead of the average print business owner-operator. Nothing in what is happening in the GEON receivership is illegal, it would appear. Sure, there is moral outrage and gnashing of teeth by unsecured creditors – and understandably so.

    Employees of GEON would have to be the group that is suffering most and what is about to happen is a 2-edged sword. Their only hope of continued employment and perhaps even some of their entitlements such as long service leave and super, is that either the Pre-Pack is successful or a White Knight buyer scoops the company. It’s not a nice space to be in.

    And what of GEON’s customers and long-term contracts? By definition the contracts are voided by the insolvency…they can choose to keep printing with GEON or take their business elsewhere.

    The entire issue is vexed with contradictions and conundrums but this is the price we pay for operating in a free market economy. When it is working well, we praise the system; when it fails, we curse it.

    I expect to see a Pre-Packed GEON emerge within 10-14 days, there are time requirements on the process. Where it goes from there is anyone’s guess.

    Let’s hope the lessons are learned and learned well.

  • GEON goes bust

    GEON’s long-running saga comes to a bitter end, with the embattled print giant finally entering administration after years of financial difficulties and deepening debt.

    GEON Group is now in the hands of administrator and receiver, McGrath Nicol deciding the fate of the company’s 1200 workers in Australia and New Zealand.

    The receivers were called in yesterday afternoon at the insistence of the new owners, US private equity firm Kohlberg Kravis Roberts (KKR), who took control from Gresham PE last week. The US-based investor fund has dropped the company like a hot potato.

    Although local advisory firm, PPB Advisory, was initially appointed as GEON’s administrator, the fate of the company is now in the hands of McGrath Nicol, at the request of KKR and Allegro Funds. McGrath Nicol is embarking on a sales process for the group.

    “We have already commenced a sale process for GEON’s businesses and assets and have received an expression of interest from one party and held discussions with others,” says Shaun Fraser, one of McGrath Nicol’s four appointed GEON receivers and managers. “We have begun the process of stabilising GEON’s operations with the support of key stakeholders, including GEON equity holders KKR and Allegro [KKRM]. This will facilitate a thorough assessment of each of GEON’s business units’ financial position.”

    Although the print group is riddled with debt, it possesses one of the country’s richest collections of state-of-the-art print equipment and, with McGrath Nicol already embarking on a sales process for the company, some of Australia’s other big industry names have been mentioned as potential suitors – with industry sources naming Blue Star as one of the interested parties.

    GEON chief, Graham Morgan.

    Another option on the table for GEON’s future is that KKR with Allegro [KKRM] buy back the printing group. According to latest reports, KKRM has already submitted an offer for the business, in what some commentators are calling a possible ‘phoenix’ manoeuvre.

    The sudden end comes after six years of private equity engagement that saw the company shrink dramatically from an estimated $350 million to where it was passed to its current owners earlier this month for practically nothing.

    KKR and Australian private equity firm, Allegro Funds, took on ownership of GEON earlier this month from Lloyds Banking Group as part of a distressed loan portfolio worth $350 million. According to reports, they paid less than $5 million for the company, and held the right to receive an $80 loan from it in 2015.

    Although the size of the print group’s outstanding debt has not yet been made public, it is clear that it will heavily impact a large number of print industry suppliers in the local market.

    2012 was a tumultuous year for GEON, with the print group losing several of its most prominent employees, including New Zealand executive general manager, Andrew Durrans, head of operations, Roger Kirwan, eastern seaboard general manager, Glen Draper, Scott Thompson, chief operating officer,  and NSW head of sales, Kim Lykissas, among others – many of whom have taken up positions with competing companies like Blue Star and OPUS Group.

    The company copped industry backlash in September 2012 when it moved to slice its labour costs, entering talks with employees with the aim of minimising its outgoing staffing expenses while endeavouring to keep staff numbers steady. Since then, however, the company has seen a long line of employees walk out.

    Update: dateline – 15:58 February 21

    Shaun Fraser, Jason Preston, Murray Smith and James Thackray of McGrathNicol have been appointed Receivers and Managers (“Receivers”) of GEON Australia Pty Ltd and related entities by a secured creditor.

    This appointment occurred after the Directors of GEON appointed PPB Advisory as Voluntary Administrators. Control of GEON’s businesses and assets now rests with the Receivers.

    For further updates on this story, click here.

  • Private equity’s role in Blue Star break-up – Andy McCourt’s Reverb

    We’ve all seen the news – Blue Star Australia is back in the hands of Geoff and Paul Selig as Caxton Print Group, backed by Wolesley Private Equity, while across the ditch, it’s groundhog day for Tom Sturgess whose Tiri Group, backed by Mercury Capital, has acquired the NZ Blue Star operations. Andy McCourt (pictured) looks into the mysterious world of Private Equity funds and their decade of involvement in Australasian printing, and what the future may hold.

    A little over eight years ago, Print21 alerted the Australian Printing industry that “The Kiwis are Coming!”  Our Paul Revere moment foretold of New-Zealand-led raiding on long-established Australian printing businesses, starting with Merrit Madden (now inside Blue Star) and Graphic World (now inside GEON). The buyers were offering handsome leveraged buyout sums to ageing business owners with few or no succession ideas and ‘lazy balance sheets.’

    There were two progenitors of this activity and both had begun the roll-up of fragmented print businesses under one rationalized umbrella in New Zealand. Geoffrey Wilding’s Pacific Print Group, backed by ANZ Private Equity, had subsumed around seven NZ print businesses and Tom Sturgess, a director of Goldman Sachs JB Were PE (NZ) had rolled up the likes of Nicholson’s, McCollums and so forth, before striking out across the Tasman with the Merrit Madden buyout.

    These two were later followed by a third Kiwi-based PE fund; Knox Investment Partners who acquired Ligare Bookprinters and went on a buying spree of Southwood Press, Cactus Imaging, Omnigraphics, COS (Singapore), CanPrint and the reverse takeover of McPherson’s, which under the Opus Print Group banner delivered the only public listing of a PE-backed print group.

    Regrettably, since listing last April, the shares have bombed 88% from $1.76 to 21cents as of writing. Something must be worrying the market, not the least that Knox, as a foundation shareholder, immediately extracted $8.3 million from the float and Ligare co-founder Richard Celarc $2.5 million. In early January, up to $3.4 million of this was loaned back to Opus at 15 per cent interest; rising to 24 per cent should shareholders not approve its conversion to equity. Restructuring to reduce debt, with a focus on Asia, is underway according to CEO Cliff Brigstocke. Hopefully this will begin to restore shareholder value in what appears to be a well run print group.

    To cap it all off, Kiwi fund manager Maui Capital acquired paper merchants BJ Ball, Focus, Boomerang and CPI. The head of Maui is another ex-Goldman Sachs NZ man, Paul Chrystall.

    Private equity – a different kettle of fish

    The first thing I have learned about Private Equity Funding is that it is wheels within wheels, funds deal with funds, executives leave and start new PE ventures but still deal with their old employers and there is a significant sprinkling of Harvard MBAs and other highly qualified finance individuals whose job it is to generate significantly higher returns than can be earned at the bank, in government bonds, or on the stockmarket.

    The second thing I have learned is that everyday rules of accounting and legal corporate frameworks do not apply to PE funds. The accepted authority of accounting for PE funds, Mariya Stefanova, says in her seminal training work: “private equity accounting is unique and difficult to understand, at least at first, by accountants from outside of the asset class.”

    The third and most eye-opening lesson is that, by nature, the vast majority of PE funds are illiquid. They have little or no cash. They leverage small amounts of cash to gain massive results. Money comes in from ‘Limited Partner’ investors and this is used to buy businesses that can generate cash. Some PE funds are turn-around focused and invest in under-performing businesses to make them an attractive ‘exit’ following restructuring or IPO float. Others appear to use part of their portfolio as ‘cash cows’ – milking them for all they are worth and not caring what value is left at the exit point. NZ stockbroker Chris Lee has openly stated that Blue Star was ‘continuously milked for everything it had’ and ‘the brand was being destroyed instead of being saved and was directing cash flow to the directors and employees, while not honouring their obligations to bondholders.” Phew!

    Whatever the performance of component companies in a PE fund, the ultimate goal is to return a multiple on Limited Partners’ capital invested in the fund, generate fees for the PE management and ensure a healthy ‘carried interest’ capital gain, also for the fund managers or general partners. And this they do.

    Why New Zealand?

    Why did this phenomenon start in New Zealand? Well, a full possible explanation will be published in the February issue of Print21 magazine but one significant factor, apart from the recognized derring-do of Kiwi entrepreneurs, is that there is no capital gains tax there.

    The kicker is that the PE funds are allowed to class their ‘carry’ (proceeds from acquisitions) as capital gain and not income or profit to be taxed at corporate rates. Of course there are taxes on wages but most PE fund ‘Masters of the Universe’ would be unfortunate to pay taxes over 10 per cent of their total earnings.

    I can hear the screaming but this confession came from one of Europe’s leading PE fund Chairmen; Nicholas Ferguson formerly with SVG Private Equity (now has replaced James Murdoch as head of BskyB) who famously proclaimed in 2007, with genuine distaste, that he and other PE buyout barons: “pay less tax than a cleaning lady.”

    Let’s be clear, not all PE funds are run Gordon Gekko-style (film: Wall Street) by ‘barbarians’ (book: Barbarians at the Gate, about KKR’s hostile buyout of RJR Nabisco), and certainly not by the new hybrid PE + seasoned industry veterans back in the saddle at Blue Star; but PE does get very bad press all over the world.

    In Europe it has reached such a point that Vincenzo Morelli, a former head of the world’s largest PE/buyout firm TPG is now Chair of the European Private Equity and Venture Capital Association and is busy trying to polish up the industry’s image.

    Morelli sounds like a wise man, saying: “The (PE) industry needs to recognize it’s now too big and too important to operate below the radar screen. It has to recognize that it needs a societal licence to operate, an implicit licence that accrues as a result of recognition by broader society. We need to be more open and more proactive.”

    Amen to that. Trying to get any meaningful statements, with one exception, from PE types is like breaking the code of Omerta. Many PE fund managers are quick to complain that they are ‘misunderstood’ and ‘doing an essential job in the economy,’ but offer nothing by way of transparency, disclosure or detail other than the great returns they have delivered to their LP investors. They proclaim that self-regulation is the answer to rogue elements and asset-strippers who trash companies and cost thousands of jobs and millions of dollars in un-repayable debt. Sure, and biker gangs can self-regulate too!

    It all started with printing

    The very first PE deal that rocketed the LBO (Leveraged Buyout) game to fame was for a printing company in the USA – Gibson Greetings. In 1982, a former US Treasury Secretary William Simon bought Gibson for US$80 million but only put up around US$1 million of his group’s own cash. 18 months later, Gibson floated for US$260 million and Simon trousered a rumoured US$66 million.

    In Australia and New Zealand, the decade of PE fund dominance of large print groups has not necessarily ended but it has entered a secondary market phase where smaller, more focused PE firms such as Mercury Capital and Wolesley PE, in partnership with highly capable former owners, the Seligs and Tom Sturgess, are set to turn around the businesses and run them for profit and growth and not as cash cows. Sure they have bought cheap – in Kerry Packer/Alan Bond mode – but their businesses were successful and profitable before they sold them.

    Sturgess’s Tiri Group (which he bought from the Hauruki PE fund #1 when it was exited by Goldman Sachs JB Were), comprises several industrial units including Masport (lawn mowers and foundry), Pacific Wallcoverings (wallpaper), NZ Insulators (electrical), RH Freeman (sheet metal), Rapid Labels and others. His strategy is to let existing management run the businesses with advice and finance always available if and when needed. The acquired Blue Star NZ operations should be no exceptions.

    Wilding’s original Pacific Print Group, which morphed into today’s GEON, operated under the same principle – separate businesses and brands managed under an umbrella financial entity. The subsequent aggregation, consolidation and single brand strategy appears not to have worked, with shareholder and brand value decimated. KKR and Allegro Capital are now the masters since they own the GEON debt – purchased at a distressed discount from Lloyd’s. What the future holds there depends on KKR and Allegro.

    Tom Sturgess told Print21: “I’m not an apologist for the PE industry.” Read into that what you will, but for Blue Star and GEON debt and/or bondholders, there seems to be a lot to apologise for from some other quarters.

    Andy McCourt’s full investigation into the ‘PE Decade of Print’ appears in the February issue of Print21 magazine with some startling revelations, plus a ‘where are they now?’ rundown of PE movers and shakers from the passing parade. Don’t miss it.

  • GEON maintains service contract with Heidelberg

    GEON chief, Graham Morgan, has rejected industry rumours that his company has moved its maintenance service in-house, discontinuing its contract with Heidelberg, one of its largest suppliers.

    Industry sources indicated last week that GEON had ended its service contract with Heidelberg, a rumour that Morgan has been quick to deny, saying that GEON’s maintenance service contract continues to remain active across 70 per cent of the company’s facilities.

    The rumoured contract changes refer to only three sites, says Morgan (pictured), which continue to use a full complement of Heidelberg equipment. Additionally, these sites continue to operate under other contractual service arrangements with Heidelberg.

    In a statement, Morgan said:

    In the first instance, GEON does not believe in commenting on our Employees, Clients or Suppliers. Having said that I have followed the media coverage on this story and feel it important that I correct the facts behind the rumours.

     Heidelberg is a strategic and key supplier to GEON yesterday, today and tomorrow. They deliver superior equipment and service and I recommend Heidelberg to any in the print industry.

     Further, GEON has maintenance service agreements with Heidelberg across 70% of our sheds and this story relates to three sites only which continue to be kitted with Heidelberg equipment and operating under other contractual service arrangements with Heidelberg.

     The suggestion that GEON are employing maintenance engineers to commence in-house servicing for all our sites is ludicrous and simply untrue,