Target Report: Duking It Out in the Label Business

Packaging deals have eclipsed transactions in all other segments of the printing and related industries for the past three years. That shows no sign of letting up. The temporary dominance in transactions that involved box printing companies, as we noted in The Target Report last month, has reverted once again to the norm in which label printing companies are the preferred target. (See The Box is Back – January 2023). The consolidation of the label printing industry is being driven by a slew of private equity firms that have demonstrated a willingness to pay double-digit multiples for profitable label manufacturers of any decent size. The attributes of recurring revenue, customer stickiness due to required brand continuity, and relative de minimis component cost of labels within the scheme of total product cost, all make label printing highly attractive to financial buyers.

The Contenders

Resource Label Group is my choice as the poster child for the PE-backed label industry feeding frenzy. With backing from Ares Management, its third private equity firm sponsor, Resource Label acquired Riverside, California-based Majestic Labels, the  digital label printing division of Majestic Printing Systems. Majestic is the 27th acquisition for the Resource Label Group, which began as a single location company in Tennessee in 1991. The company grew organically until 2005 when it entered the private equity ecosystem with financial backing from Lineage Capital. With only one acquisition under its belt, Lineage passed the torch to First Atlantic Capital in 2011. With the backing of First Atlantic, Resource went into hyper-growth mode and added 21 more companies over the next decade. Ares Management picked up Resource in 2021 and has continued to nurture the platform. (See Private Equity Fuel$ Consolidation of Label Industry – September 2021).

Another champion label consolidator, Brook + Whittle, is no slouch when it comes to rolling up the label industry. With backing from Genstar Capital, B+W acquired LLT Labels, a specialist in the manufacture of thermal transfer labels. Located in Stow, Ohio, the acquired company represents the 17^th production facility for B+W. Based in Guilford, Connecticut, B+W, like Resource Label, is now backed by its third private equity firm. B+W entered the world of private equity in 2009 with an investment from RFE Investments, along with independent sponsor Charter Oak Equity. RFE and Charter Oak added several acquisitions, professionalized the company along the way, and sold B+W in 2017 to TruArc Partners (né Snow Phipps Group). TruArc Partners added several more companies to the platform, exiting in 2021 with the sale to Genstar Capital. Genstar has now added three more companies to the B+W roll-up, including the acquisition of Cenveo’s Custom Labels Group, a critical turn away from labels for Cenveo as it unwound itself. (See Cenveo Returns to its Roots – July 2022).

Fortis Solutions Group also has to be considered as a challenger in the championship ring. The Fortis network now spans the US from its original location and home base in Virginia Beach, Virginia, to Napa, California, Whitefish, Montana, Lewisville, Texas, and with the acquisition of Profecta labels last year in St-Hubert, Quebec, now up to Canada. Fortis is still with its secondary private equity sponsor. After an initial seven-year roll-up without PE-backing, the company teamed up with San Francisco-based Main Post Capital Partners in 2017. Main Post Capital Partners supercharged the next phase and Fortis acquired no less than eight additional companies in just under four years. In October 2021, Main Post Capital Partners announced that it had exited Fortis, selling its interest to Harvest Partners, a private equity fund based in New York. Harvest hit the road running and provided financial and strategic support for the six companies added to the Fortis platform in 2022. We expect it will not be long before another Fortis acquisition hits our deal log. (See Private Equity Feeds Industry Growth – December 2022).

Inovar Packaging, headquartered in Dallas, Texas, was founded in 1964 as a simple printer of one-color plain labels. It took twenty years for the company to transition to full four-color process printing. Six years later, in 2000, the company dipped its toe into the acquisition game in a merger with Label 1 and launched the Inovar brand for the combined entity. It took an investment by private equity to get the deal juices flowing at Inovar, with AES Investors stepping in as the new owners in 2016. We count no less than eight acquisitions under the sponsorship of AES Investors, culminating in the purchase of Dion Label Printing in 2021. As with the other contenders in the label slug fest, the private equity sponsor eventually needs to exit the investment and realize the value they have added via the acquisition and bolt-on conglomeration process. AES was no different and in 2022 Inovar was sold to Kelso & Company private equity firm. Kelso has a unique place in the universe of private equity funds; its founder Louis O. Kelso was also the inventor of the modern ESOP when he hit on the idea of a structuring a leveraged buyout with the use of retirement plan assets. (The first ESOP was closely related to our industry, the employee buyout of a newspaper publisher, but that’s a story for another day.) Under Kelso’s sponsorship, Inovar announced the acquisition of Cimarron Label in Sioux Falls, South Dakota. We will not be surprised if Kelso picks up the pace and Inovar is in the competitive matchup more often.

In the Mix

Other competitors with PE backing, but possibly not quite as aggressive as the three top contenders, are in various stages of their PE life cycle, each vying for position ringside at the label printing industry roll-up.

Established over 40 years ago, AWT was acquired by private equity firm Mason Wells in 2015, completed one acquisition, however during this time, AWT mostly stayed on the sidelines. Morgan Stanley Capital Partners stepped in and acquired AWT from Mason Wells in December 2020, subsequently adding three new bolt-on acquisitions during 2022.

All American Label & Packaging, a portfolio company of Heartwood Partners, acquired Lotus Labels located in Brea, California. Heartwood came into the competition last March when it merged All American with Western Shield Label & Packaging, itself a serial acquirer of label companies.

I.D. Images has been very active in the label printing business over the eleven years that we have been tracking transactions, with a significant increase in deal frequency since picking up financial support from Sole Source Capital in 2021. Starting with simple blank thermal label stock, I.D. Images expanded its capabilities via acquisitions to include a wide range of label products. With a commitment to sell exclusively through distributors, I.D. Images has a clear advantage when a trade label printer is on the market but has stayed out of the fray for the companies that sell direct.

There are others in the competitive mix for label printing companies, such as Premium Label & Packaging, which was formed with financial support from Dunes Point Capital, and which has acquired at least four label businesses. ProAmpac, now a portfolio company of Pritzker Partners, occasionally acquires some label business as a component of an acquisition in its core focus area of flexible packaging and bag manufacturing.

On the Sidelines

Multi-Color Corporation has historically focused on larger deals, including its 2017 acquisition of Constantia Labels based in Vienna, Austria with a reported revenue of $690 million at the time. Since the merger with Fort Dearborn in 2021, Multi-Color has been mostly on the sidelines of the US label industry roll-up. With over 13,000 employees, operating 109 label manufacturing plants in over 26 countries, the company is on a larger scale. It simply takes more to move the needle at this size, such as the company’s December 2022 acquisition of Lux Global Label, which operates plants in Pennsylvania and Puerto Rico. (See Packaging Industry Consolidation in Every Direction – July 2021).

We would be remiss if we did not mention CCL Industries in this summary of the label business consolidators. CCL, the Canadian-based global packaging company, despite its size, has stayed out of the bidding wars that have characterized the prime label roll-up in the US. CCL has instead maintained a disciplined acquisition process seeking out unique niches within the larger label segment, including horticultural tags and labels, apparel labels, clinical trial labels and similar highly specialized corners of the market. While the market heated up, CCL managed to maintain an average purchase multiple of 6.1 times EBITDA over the past three years. (See CCL Industries Breaks the Rules – January 2022).

* Graphic Arts Advisors, publisher of The Target Report, served as exclusive advisors to Vista Graphic Communications in this transaction.

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View The Target Report online, complete with deal logs and source links for February 2023

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