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Who benefits from industry takeovers? James Cryer

Wednesday, 14 December 2016
By James Cryer

Many believe the consolidation of the printing industry is, by and large, a good thing. It strengthens printing companies and ensures their sustainable future. But not everyone agrees. James Cryer for one argues for diversity and against the current “takeover mania.”

Is anybody experiencing that feeling of déjà vu, that we’ve seen it all before? Just like hula-hoops and yo-yos, industries go through cycles. Wasn’t it just a few, short years ago we saw the arrival of a bunch of venture-capitalists embarking on a frenzied take-over spree, which saw many of our iconic brands disappear into oblivion. Recall, then, how we lamented this loss as bad for our industry, bad for employees, and last but not least, bad for customers!

If we went back a bit further, into the mists of time swirling around in the Year of Our Lord 2001, we may recall that it was none other than that fearsome scourge of monopolists, the ACCC, which forbade the mooted merger of PMP and IPMG on the grounds that it would, significantly reduce competition.

Fast-forward to 2016 when the feeding frenzy has resumed, but everything’s all right! The only difference, that I can see, is that we’re not being eaten alive by an external predator, but from within!

No matter what spin we put on it, all consolidation, merger activity, call it what you will, is bad for competition, and usually bad for the customer. Think banks, airlines, breweries, newspapers or what’s left of them, petrol companies, and retailers. The list is endless and in all cases, the monopolistic tendencies that resulted, have led to worse corporate behaviour, not better.

Don’t get me wrong: if I were poised on the brink of gobbling up my competitors, I’d do it too! That’s the nature of competition and there’s no place for hand wringing or false morality here. Lions eat people and company bosses devour their competitors.

But I don’t think we should sugar coat it as being good for our industry.

Reducing the number of competitors pleases only one group of people: shareholders! And yet, reading the various press releases of unalloyed joy, and the uncritical adulation by our trade press, one could be forgiven for thinking these large and soon to be larger, companies were throwing $100 bills to us from the rooftops.

We should be careful what we wish for. I know times are tough, but does that mean mergers are the answer? Australia’s industry is already notoriously over-concentrated, according to the Herfindahl Index, where it’s generally agreed anything over 60% (or 0.6) is bad from a healthy competition viewpoint. Looking at the results of these proposed mergers, we’re seeing a reduction from five players to two. I think that puts the concentration index off the Richter scale! (Hellooo ACCC …)

Virtually all the chairmen of those entities involved, refer to the challenges of ‘over-capacity.’ Yet somewhere I read that the catalogue market [is] one of the few sectors in printing that is recording continuing growth. This is echoed by Kellie Northwood, who continues to sing the praises of print over electronic alternatives and sees a great future for printed commercial mail.

So why the feeding frenzy? It may have something to do with low interest rates that make such acquisitions so palatable. It may have something to do with IVE Group (Blue Star) having become a public entity, is now driven by the appetite of its shareholders. But whatever the reason, we all know it’s much easier to grow by acquisition than organic growth and it gets rid of a few competitors at the same time.

This trend towards consolidation, is a reminder that our industry is experiencing the cold winds of shareholder-driven, as opposed to owner/operator-driven priorities, where decisions are made not for the benefit of the internal stakeholders, such as owners, staff and suppliers, but for those external investors who have no particular affinity with our industry. To the extent that it is impossible to reconcile those two opposing dynamics, I see these mergers as net negative for our industry as a whole, but, sadly, part of an inevitable long-term trend.

There is no room for morality in this brave new world. We’ve chosen the path of de-regulation: the law of the jungle, the survival of the fattest. We’ve unleashed the voracious beast and who knows where it will take us? But is this what we want: a regulatory regime that, notwithstanding the obvious result of reduced competition, merely looks the other way? This level of market domination would not be allowed in the US. Have we thought about what happens in an industry dominated by a few large players? What happens if the agendas of these large companies deviates, or is at odds, with the aims of the major industry body?

In one sense, I don’t care if these mega-companies do well – good on them! But, as in all things, there will be hidden consequences. We should think long and hard, as an industry, is this what we want? For an industry to survive it needs diversity. On this issue there has been very little debate, and sadly, virtually no critical analysis from our own trade press. Are they too beholden to these large players via advertising and sponsorships to want to rock the boat?

This spate of merger activity will change the print landscape dramatically and forever. We need more critical and informed debate; not just PR statements telling us its ‘good for everyone.’

 

4 Responses to “Who benefits from industry takeovers? James Cryer”

  1. December 15, 2016 at 10:49 am,

    Old Timer
    said:

    It may not be good for the customer but it is the customer that has driven prices down by playing companies off against each.

    Then they complain that there is no competition and prices will increase…….perhaps in the near future they will be paying the price they should have been which would have kept all companies viable.

    The print broker may also need to reconsider his tactics!

  2. December 15, 2016 at 12:12 pm,

    said:

    Hi James, I would like you to consider one important factor which you may have over looked. The mergers and acquisitions are not driven by opportunity only the fact of the matter is that the market has reduced significantly and it is continuing to reduce by 10% per year. I can assure you that the hundreds of companies that went into liquidation due to this situation would only wish that someone had acquired them prior to liquidation or closure. The fact is we have an over supply of capacity which is forcing prices down, so in my view please “bring on” the mergers and acquisitions and I hope the PIAA can assist and expedite this process so we end up with fewer printing companies but profitable and well-resourced businesses. Once that happens we will see further investment back into the Industry because there is money to be made. This notion of unregulated capitalism is a concern for us a nation we certainly do not want to be like the wild west in the USA but at this point in time we dont want to be kangaroos in the spot light either.

  3. December 15, 2016 at 12:14 pm,

    Andy McCourt
    said:

    Timely piece Jim but on:
    “On this issue there has been very little debate, and sadly, virtually no critical analysis from our own trade press. Are they too beholden to these large players via advertising and sponsorships to want to rock the boat?”

    Answer = NO!

  4. December 24, 2016 at 5:00 pm,

    James Cryer
    said:

    G’day Kerim – many thanks for responding – that’s what it’s all about! – and that’s what I aim to do, to prompt a range of responses across a raft of issues – we’ve got the internet, and social media and Print21online but we’re still very bad, as an industry, in articulating our views.

    I think my piece on Brexit was a good example. In one sense I could have written either for or against (it probably won’t make a blind bit of differenence in the long run, anyway), but I did make some reasonable points on the ”in favour” case. But all I got were people pushing their own agendas, or calling me a racist bigot – none of whom actually addressed the issues: if you don’t agree… tell me why, don’t hurl abuse!

    Anyway – maybe there is scope for such a forum? Patrick could formally create such a page as part of his Print21online offering.

    Re my piece on industry consolidation – I agree with you when it comes to the dozens/100s of small firms – there should be some form of consolidation – even with gov’t assistance! as there are probably too many printers!

    That wasn’t my main point, which was: such consolidation can become questionable at the top end where a few market leaders (Coles/Woollies, Qantas/Virgin, etc) decide to combine with one view, ie, market domination.

    Anyway – like all topics there’s pros and cons – that’s what good debate is all about.

    But getting back to the forum idea (and I’m all for ’em!) maybe anybody who has a bee in their bottle, be encouraged to toss a ”hot topic” into the forum – and let everyone toss their two bob’s worth.

    That way it may encourage a higher standard of debate (or at least written expression) than is the case now.

    Cheers for the New Year!!!

    Regards,

    James Cryer

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