Mail-Well Feeds on Acquisitions, Eyes High-Impact Color, Label Markets

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An acquisitive approach has built Mail-Well Inc. into the largest printer and manufacturer of envelopes in North America in four years -- and through further consolidation, the company is looking for similar dominance of the high-impact color printing and label industries.


Since chairman and CEO Gerald Mahoney formed the company in 1994 with the purchase of Georgia Pacific Envelope and Pavey Envelope and Tag Corp., Mail-Well has acquired 13 companies in the fragmented envelope and commercial printing industries with annual revenues of $876 million. Mail-Well, Englewood, CO, manufactures envelopes for customized consumer direct marketing and prints color catalogs and brochures.


"There is no competition in envelopes. They are the envelope business,'' said Linda Lieberman, an analyst with Bear Stearns. "They know how not to overpay on an acquisition.''


Printing rivals American Pad and Paper, Dallas; Graphic Industries Inc., Atlanta; and World Color Press Inc., Greenwich, CT, also make acquisitions but not with the zeal and frequency of Mail-Well.


Mail-Well reported 1997 net income growth of 65.8 percent, to $28.2 million, and revenue growth of 15.3 percent, to $897 million, making it one of the five top-performing stocks of the year, according to Lieberman.


In the last month, Mahoney has raised $91 million from the sale of common stock and named Paul Reilly president and chief operating officer. Reilly will handle day-to-day operations, allowing Mahoney to focus on long-term goals.


"The sale of these shares will put in place a capital structure that will allow us to fund our ongoing acquisition program,'' Mahoney said in a prepared statement Feb. 11. "Given the plethora of attractive acquisition candidates in our various lines of business, we expect the proceeds will be put to such use immediately or in the near future.''


The company will make its first step into the $5 billion label sector by acquiring the label division of Lawson Mardon Packaging, Northbrook, IL, which generated $80 million in sales in 1997.


By company estimates, 215 envelope companies generating $3 billion in annual revenues and 500 commercial printers generating $3.5 billion operate independently in North America. Label companies are ripe for consolidation. As Lieberman said, "Anything that makes sense they will go after.''


Direct marketing companies provide a significant amount of Mail-Well's business and play a role in planning and thinking for the future, said vice president and treasurer Kevin Holly. He added that although Mail-Well targets some companies, acquisitions arise primarily out of opportunity.


Most printing and envelope companies are family-owned regional shops scattered across the country that decide to sell when the family is ready to retire or wishes to diversify its business. The industry has remained fragmented because clients have demanded local support and timely delivery.


"In the envelope market, everyone knows Gerald Mahoney,'' Holly said. "When they make the decision to sell, they know where to go right away. That's a value to the seller, that they don't have to go through a middleman.''


Mail-Well adopts a decentralized approach to its more than 70 printing plants in the United States, purchasing profitable companies that are able to keep running under their own management. The parent company gains regional coverage and, through economies of scale, can keep supply, production and transport costs low to help the plants compete.


"The biggest benefit [of consolidation] is having a national sales approach to better serve our customers,'' Holly said. "The bigger we get, the more power we have with the supply market.''


Having so many plants allows Mail-Well to balance its work flow and not turn down jobs. When a plant is at capacity in one part of the country, an order can be shifted to another facility. Such coverage also can generate more business from each client.


"They were doing the high-end jobs,'' Lieberman said. "Local and regional printers pick up the smaller business with the same clients. It's a logical fit and extension to get more commercial printers. The whole concept is very similar to the envelope business.''

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