Thursday, July 1, 2010

Service Point announces renewal of its Merger and Acquisition initiative

Immediately following this intro paragraph, you will find the “full text” of a Press Release Service Point issued on June 29, 2010. Immediately after the Press Release, you will find a few comments from me about the information in the press release.

Service Point to renew M&A activity in 2010

· The company is currently analysing and/or negotiating six potential transactions
· The Board has already analysed two potential acquisitions in depth
· Service Point expresses interest in Scandinavia and Germany
· The company does not rule out financing the deals with equity
· The transactions under consideration would be earnings accretive from day one thanks to our management, the companies’ standalone profitability and estimated synergies

29 June 2010. - Service Point Solutions, S.A (ticker: SPS.MC) will resume M&A activity in 2010 in a bid to boost scale.
So said the company’s chairman, Juan José Nieto, at the Annual General Meeting held today in Barcelona.

The company is in the process of analysing six potential transactions with companies with aggregate revenue and EBITDA of €85 million and €13 million, respectively. Juan José Nieto confided in the company’s shareholders that the Board has already analysed two of these acquisitions in depth. Until 2007, Service Point was acquiring an average of four companies a year. According to the company’s chairman, “we are ready to resume our acquisition-led growth policy, with a special focus on strategic markets such as Scandinavia and Germany”.

All the transactions under analysis would be earnings accretive from day one thanks to Service Point management, the companies’ standalone profitability and estimated savings. They would also give Service Point a foothold in new countries.

Service Point does not rule out financing these acquisitions with equity, issuing shares to the sellers. If the transactions at an advanced stage materialise, the first such equity issue could total €10 million, taking place towards the end of the third quarter. Over the coming 12 months, Service Point could raise equity again as a function of its business performance, investment opportunities, balance sheet strength and its share price performance.

During the AGM, Juan José Nieto also alluded to the company’s earnings performance. Service Point’s chairman expects momentum to improve as the year unfolds, saying that “cost streamlining combined with the revenue firming witnessed during the early months of 2010 will underpin earnings momentum which should gather pace as the year progresses”.

The company’s financial performance in 2009 was marked by the cost restructuring program which concluded last quarter, the results of which have topped the company’s own estimates. Service Point managed to cut costs by €21 million and capex by 51% last year. This cost-cutting, combined with the improvement in sales in most of the company’s operating markets, has paved the way for an inflexion in earnings in the second quarter.

During 2009 Service Point reinforced its sales effort to shore up organic growth and offset the dip in customer business volumes. At present, 48% of customers come from the corporate sector, 26% are classified as AEC (architects, engineers and construction), 12% are financial institutions, 9% belong to the public sector and the remaining 5% to the education sector. The company plans to increase the contribution of the e-commerce channel which is expected to generate 30% of revenue in the next couple of years, compared to 5% today. In 2010 Service Point is looking to continue to reinforce the company’s sales arm, particularly in the print-on-demand, web-to-print, facilities management and document management segments.

Juan José Nieto expressed his confidence that investors will acknowledge the work performed in recent years and the upside inherent in the company’s valuation. According to Service Point’s chairman, “the share price should recover as soon as equity markets stabilise. In addition, share price momentum could pick up as the company grows in scale by resuming its M&A activity.”

To demonstrate their commitment to the company, on 22 June the company’s directors agreed to earmark half their pay to buying Service Point shares, which will bring their combined shareholding in the company to approximately 31%. Last year the Board members cut their pay by one-third, a decision in keeping with the cost cutting program put in motion by the company one year earlier.

Service Point Solutions ( provides digital reprographics and document management services to the infrastructure, manufacturing, public and services sectors. It employs 2,300 people across eight countries (the UK, US, Spain, Germany, Netherlands, Belgium, Norway and France) via a network of 116 service points worldwide and 753 facilities management programs. SPS is headquartered in Spain and listed on the Madrid and Barcelona stock exchanges (ticker: SPS.MC).

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Joel's comments:

If I correctly "interpreted" one of the statements Mr. Nieto made, Service Point is considering selling additional stock to the public, sometime later this year or sometime after that. And, based on another statement Mr. Nieto made, SP is considering doing some of its acquisitions for stock (instead of or in addition to cash or cash and notes.)

I just went to SP’s web-site to look at the historical price-per-share graph. If I read that graph correctly, SP’s stock price, at its peak, which was, I think, sometime around June 18, 2007, was around 4.25 Euro per share. This morning (July 30, 2010), SP’s stock price was .59 Euro per share. If I’ve done the math correctly, SP’s current stock price is about 86% down from its peak. By comparison, ARC’s stock price peaked at $39.00 per share on May 5, 2006. ARC’s stock price on June 18, 2007 was $30.68 per share. ARC’s stock price, this morning, was $8.51 per share. If I’ve done the math correctly, ARC’s current stock price is approximately 77% down from its peak and 73% down from its price on June 18, 2007. Given the size of the fall-offs in prices-per-share, SP and ARC, I would imagine that it is not unreasonable to say that there is plenty of room for the per-share prices of SP and ARC to increase, in other words, the potential for upside growth. However, I would think that, in order for their stock prices to go up, that’s going to require two very important things: 1. a return of investor confidence in - a) the health and direction of the overall economy and b) the renewed vitality and expected growth of the Design/Development industry, and 2. a return of a) sales growth, b) improved margins and c) net earnings performance.

Although most acquisitions in the reprographics industry - (and I'm saying this based on my own personal experience in the industry and my knowledge base of acquisitions that have happened in the past 30 or so years in the reprographics industry, and all that means is that I could be right or wrong; I'm not all that smart) - are done for cash or for notes, or for a combination of cash and notes, some acquisitions have been completed for stock (some with cash and stock, some with cash, notes and stock, and, yes, some for only stock.) But acquisitions 'for stock" are not very common in the reprographics industry, at least when compared to acquisitions completed for cash or cash and notes. Years ago, one of my friends in the New England area sold his reprographics company to a much larger company (at the time, a very aggressive acquirer) and he took some cash but mostly stock of the acquirer. Unfortunately, the stock he got was then valued at around $50 per share. That stock price later fell to under $12 per share (or even less, I don't recall exactly how far that stock fell.) Other friends, out West, sold their business, for cash and stock, to a public company. That public company, not too long afterwards, went into bankruptcy and its stock became worthless. It was a damn good thing that the sellers got most of the purchase price in cash, rather than in stock. If I'm recalling this correctly (or close to correctly), they got 80% of the purchase price in cash and 20% of the purchase price in stock. Selling for stock can be "dicey". Or, it can be a great thing. It will be interesting to see who, in the future, sells to SP for SP stock and how much of the purchase price is paid in stock (the latter, assuming they will reveal that.)

Finally, based on another statement made in SP's press release, competition in the German market is apparently going to heat up. I say that because ABC Imaging recently announced an agreement with a German reprographer (Raak Gmbh) and because SP said that its acquisitions are, apparently, going to focus on Scandinavia and Germany. SP already owns operations in Germany, so any further acquisitions in Germany will increase SP's market share of the German market. ABC Imaging, SP and ARC are already head-to-head competitors in London and in quite a number of markets in the U.S. However, ARC does not currently own any operations in Germany, nor, to the best of my knowledge, has ARC announced any plans to enter the German market.

As to SP's expressed intentions in growing in Scandinavia, being a U.S. guy I'm a bit geographically challenged when it comes to Europe, so I had to Google "Scandinavia" to see what countries are considered Scandinavian countries. The map Google took me to reveals that Iceland, Norway, Sweden, Finland and Denmark are all considered part of Scandinavia. SP's web-site says that SP has operations in Norway, but not (at least presently) in the other countries I just mentioned. Iceland's economy is having great difficulty. So, if, for the time being, we rule out Iceland as a near term SP target, that leaves Sweden, Finland and Denmark as the most likely targets for SP acquisition activity. The question is, which companies in Sweden, Finland and Denmark are currently SP targets? Well, time will tell, we'll see.

1 comment:

  1. This is a related PR piece from SP