Interesting article about "Top Project Starts" in Southeast Construction News

An interesting article that recently appeared in the current issue of Southeast Construction News:

"Top Project Starts, Despite the Southeast Market’s ‘09 Decline, Ranking of Major Projects Shows Improvement", by Scott Judy

The full article can be found at this Internet address:
http://southeast.construction.com/features/2010/0701_TopProjectsStarts.asp

In that article, they list the "top 20" project-starts in the Southeast in 2009.

For me, the most interesting "fact" about that list is that it appears that there are only 1 or 2 "commercial" non-res projects that made the list and, not surprisingly, a good amount of projects that are "stimulus" projects.

ABC Imaging acquires Graphic Reproduction, San Francisco area industry leader

From a press release found on ABC Imaging's web-site:

ABC Imaging acquires Graphic Reproduction, San Francisco area industry leader
Washington, DC—July 12, 2010—ABC Imaging announced today that it has acquired Graphic Reproduction of Concord, CA.

Founded in 1959 Graphic Reproduction has a long tradition of being in the forefront of digital printing and reprographic technology. Like ABC Imaging, Graphic Reproduction combines innovative technology with core philosophies of high quality and rigorous customer service.

"We are pleased to have the opportunity to be the new owners of Graphic Reproduction," said Medi Falsafi, President and CEO of ABC Imaging. "Our two companies are very similar—we both value quality and we both want to provide our customers the best possible service with every job."

For ABC Imaging the acquisition adds three production hubs in the San Francisco area. The largest Graphic Reproduction location, in Concord, CA, includes extensive production capability. The facility can print a full range of products using small, large, and wide format digital printers; 3D printers; and specialty printing and graphic arts equipment.

"Graphic Reproduction offers many of the same products and services as we do," Mr. Falsafi said. "We were attracted to the fact that they have always looked ahead and are early adopters of new print technologies."

- - - - - -

Joel's comments:

In ABC's press release, it says that Graphic Reproduction (GR) was founded back in 1959. While I never met Walt Walker, founder of GR, I certainly knew of him and of his excellent reputation. In late 1981 when I first met Paul Koze (former CEO of BPS Reprographics in San Francisco) and asked him "who are your major competitors in the S.F. market", he replied that GR was.

There is, though, some confusion on my part about "GR." It was my understanding that Ford Graphics entered the San Francisco market (sometime around 1989-1991) by purchasing Graphic Reproduction. And, with that acquisition, "inherited" a nice staffed FM relationship with HOK Architects. But, if Ford bought GR back then, then how can ABC be buying GR now? I think my confusion has something to do with the Walker family. I think the story goes something like this: at one time, Walt Walker was in business with his son and wife. And, at some point, the business must have been split (son/wife together with one of the parts and Walt with his own part.) Ford bought one of the parts, now ABC is buying the other part.

Hey, there must be someone out there who knows the real story about the Walker family and the entity that Ford bought when Ford first entered the S.F. market. How about letting me know, so I can correct this post.

Wow, it looks like competition is going to heat up in the San Francisco AEC Reprographics market. Now, Ford Graphics (ARC), ABC Imaging and NRI, three of the top ten reprographics enterprises in the U.S. (if not in the world) are going "head to head" in that major market and all three companies are "major players" in the AEC OnSite (FM) business! (Note: that situation already existed before ABC's acquisition of GR, since NRI opened last year and since ABC already had two locations in the Bay area. What's changed is that ABC has acquired market share.)

[p.s. now that I've had a few minutes to think further (i.e., reflect back in time) about this, I do remember being contacted by a business broker about Graphic Reproduction, but I don't recall if I was still with Rowley-Scher Reprographics at the time (that would have been in 1988) or if I was already out of the business (that would have made it around 1990 or 1991). I remember signing a confidentiality statement and later receiving information about the acquisition opportunity. But, that's all I remember. Hey, it's been along time and I'm old! Also, if my mind is working a bit sharper now (probably not), I think that it was (a) GR that Ford purchased and, at the time, the other Walker owned business (or soon to be opened other Walker business) was initially called Walker Reproduction. If that is the case, then perhaps, after a period of time, the Walker name was replaced by the former GR name?]

Reply to question about source of data used to develop the AEC Reprographics PPoP Index....

One of my blog-site readers just asked this question about the AEC Reprographics PPop Index:

"Joel, What is the source of the data you use? Who compilies the numbers? What vendors contribute to the data set?"

Response:

1) the data I'm using to compute the index is furnished to me. (In other words, I am not the "source" of the data, and I don't just "make it up." (SMILE)

2) after I receive the data, I first compile the data, and I then do the simple math that's required to compute the index.

3) As to your question about the source of the data I'm using to support the "index" of "plans printed on paper," I would love to be able to tell you the source(s) for that data, but, in order to get the data, I had to promise not to disclose the source(s). So, I'm sorry, I can't / won’t.

I would imagine that some in the AEC reprographics industry have already figured out where the data I'm using is coming from (I say that because of e-mails I've received, but I can't / won’t confirm or deny.) I am very aware that most who see the index will give it no credence because I'm not disclosing what data the index draws from. I don't particularly care whether people give credence to, or don't give credence to, the Repro PPoP Index; remember, my blog is my hobby, it is not a business. I can assure you that the index is not just a SWAG and that it is based on data that's directly related to "printing plans on paper", but there is no way for me to know if I've got enough data to say that the index is something that industry folks should pay any attention to. I will say that the data I'm using can in no way (i.e., cannot at all) be relied on to predict the future ups/downs of the reprographics industry.

(To the person who posted the comment that contained the questions, best regards, and I hope that it's not too hot in Arizona.)

Quarterly Index of A/E/C reprographer sales revenues from "plans printed on paper" (Q2 2010 update)

This is the 2nd quarter 2010 update to the index of the U.S.A. A/E/C reprographics industry's sales revenues of "plans-printed-on-paper".

The A/E/C Repro PPoP Index .....

This index does not attempt to track "total sales" of A/E/C reprographers. It attempts to track only sales of "plans printed on paper," which, traditionally and even nowadays, is the core (main) revenue generator for all A/E/C reprographers.

And, by "plans printed on paper", I mean A/E/C "plans", large-format, b/w and color, unbound or bound, full-size, half-size, whatever l/f size.

There will be a recovery in the A/E/C industry and thereby in the A/E/C reprographics industry. However, some are saying that even though there will be a recovery in the A/E/C industry, the recovery of sales revenues from "plans printed on paper" may not mirror the A/E/C industry's recovery, since some are expecting (I guess I should say, some are saying) that revenues from printing plans on paper are being negatively impacted by customers distributing CD's (or files) instead of distributing "hard copy" plans.

For this index, Q1 2006 is the ground-zero (base) point.

YR-- 2006-----2007-----2008----- 2009-----2010

Q1-- 1.00-------1.09-------1.10------0.65------0.55

Q2-- 1.06-------1.18-------0.98------0.65------0.60

Q3-- 1.08-------0.97-------0.85------0.57------

Q4-- 0.89-------0.93-------0.64------0.49------

This index indicates that the sales volume of "printed plans on paper" was off 40% in Q2 2010 compared to Q1 2006.

This index also suggests that the volume of "printed plans on paper" during the first half of 2010 is down just over 10% from the first half of 2009.

Your comments and questions are invited.

(This index is based on A/E/C Repro Vendor sales to A/E/C Reprographers)

[UPDATE COMMENT ON JULY 14, 2010:

HEY, WHAT I FAILED TO POINT OUT IS THAT THE Q2 2010 INDEX, .60, IS NEARLY 50% OFF THE "PEAK INDEX" IN Q2 2007.]

Get ready for the second leg of the recession?

BACKGROUND:

I subscribe to Morningstar Research and, yesterday, Morningstar released a video where Dr. John Hussman, President of Hussman Investment Trust, was interviewed by Ryan Leggio, and Investment Analyst with Morningstar. After I watched that video, I visited the Hussman Funds web-site (http://www.hussmanfunds.com/index.html) and found (and read) two different articles, both authored by Dr. Hussman.

On November 12, 2007, Dr. Hussman wrote an article, one that appeared on his company’s web-site, in which he predicted that a recession would soon begin. As we later learned, the current recession (although some would say we are now in a period of recovery although it does feel like we are to me) began in December 2007. In other words, Dr. Hussman’s prediction was “spot on.” I went back in time to read Dr. Hussman’s article from November 2007 before I read the article he published on July 6, 2010, simply because I wanted to see what he said back then before I read what he’s now saying. I am glad I read both articles. Both are a mixture of economics, investment, finance and public policy lessons.

The first article I read, Expecting A Recession, by 

John P. Hussman, Ph.D., November 12, 2007, can be found at this internet address: http://www.hussmanfunds.com/wmc/wmc071112.htm
In this article, Dr. Hussman basically says that a recession will soon begin, and he goes on to share the factors why he came to that conclusion. (As I earlier said, his prediction proved to be “spot on.”)

The second article I read, Implications of a Likely Economic Downturn, by 

John P. Hussman, Ph.D., July 6, 2010, can be found at this internet address:
http://www.hussmanfunds.com/wmc/wmc100706.htm
In this article, Dr. Hussman basically says that we will soon be in another recession, or, if you want to call it this, a double-dip recession. Like in his earlier article, he goes on to share the factors why he’s come to this conclusion. (As to whether this prediction will prove to be accurate, who the hell knows.)

COMMENTARY:

As most people, who do any amount of reading about the economy, finance, investments, blah, blah, know, when leading experts are asked this question, “will the economy continue its recovery?”), 50% of the experts say “yes” and 50% of the experts say “no.” (Well, maybe it’s never quite 50-50, but I’m sure you get the point.)

I was not an Economics major in college, and, quite frankly, I struggled with Econ 1, 2 and with Econ 101. I did take accounting and finance courses (lots of them), not that I learned anything useful (I’m kidding, of course.) In spite of my lack of “economics background,” I’m going to now attempt to put a “reprographics industry – reprographics business” SPIN on Dr. Hussman’s articles. That’s because this blog is titled “Reprographics 101”.

As I pointed out in one of my earliest blog posts, I was involved in a reprographics business that was sold in December 2007. Our company had experienced a significant boom in business, for several years running, up until late 2007. Our “first-half 2007” sales were up over our “first-half 2006” sales, but, by the end of the third quarter, we were flat, comparatively speaking, 2007 vs. 2006. Because we sold the company in mid December 2007, I do not know how the company’s sales compared, Q4 2007 vs. Q4 2006 (quite frankly, having sold the company it was “not our problem” at that point), but, if I were to venture a guess, our Q4 2007 sales were less than our Q4 2006 sales, and, with that, it is quite possible that our full-year 2007 sales came in less than what our full-year 2006 sales had been. So, 2007 was an “up, then down” year. During the early to mid part of 2007, we had already begun to notice a drop-off in sales to customers who were involved in “civil, site, survey and land planning”; these are the engineering and planning firms that do work for new “residential” developments. The point of this paragraph being that, when Dr. Hussman, in November 2007, predicted that the economy would soon be in recession, we were (meaning, our company was) a “poster child” for that prediction.

When the residential design/development/construction industry went south, many were saying, “no problem for the reprographics industry, that’s only (residential is only) 15% or so of their business; commercial design/development/construction is fine and will carry the reprographics industry through the downturn in the housing sector.” As everyone in the reprographics industry *learned, “that’s not so.” A downturn in the housing sector leads to a downturn in the commercial (non-res) sector. The crisis in the finance industry certainly accelerated the downturn in the non-res sector, but, even if that acceleration had not happened, there still would have been a downturn in the non-res sector. It is the “natural trickle-down” effect, as I think I’ve talked about in past posts on this blog. (*Stock analysts and investors, who really had no clue about the reprographics industry, finally learned this lesson, I think.)

In light of Dr. Hussman’s most recent “recession” prediction, let’s take a look at “present indicators”:

• the design/development/construction industry is a huge part of the U.S. economy. Residential development is still weak, commercial development is still weak, and, unless the government puts additional money to work to stimulate public works projects, that sector is going to decline in activity, simply because states, counties and cities are suffering severe budget problems, brought on by lower tax revenues. Thesis: without a recovery in the design / development / construction industry, the chance of a double-dip recession remains high.

• At this point in time, around 800(!) U.S. banks are on the FDIC’s “problem bank” list. That’s because of soured (and, present tense, souring) loans and reduced capital bases. Many of the banks on that list (and the banks that have already failed this year) are on that list because of “problem” loans to the real estate sector (res and non-res.) As I’ve previously pointed out on this blog, developers don’t build unless they have access to (other people’s) money, i.e., loans to fund land acquisition, property acquisition, design/development and construction, and, when you read the Federal Reserve Board “beige book reports” and consider the CMBS (commercial mortgage backed securities) statistics, it is very evident (at least I think it is) that “lending” to the real estate development industry is still well off; money for development is still hard to obtain. This, in spite of the fact that interest rates are at an all time low!!!

• Even though the employment rate is (supposedly) down (recently dropped to “only” 9.5%), some say that the “real unemployment rate” is much higher than the one the government publishes. I’ve read some reports that say the “real unemployment rate” is in excess of 15%, if not higher. And, even though interest rates (for buying residential property) are lower (at an all-time low for that matter), qualifying for loans today is much more difficult than it was several years ago … and, speaking facetiously, it helps to have a job if you are applying for a loan. No job, no income from work, no loan, even if you have been able to maintain a good credit rating.

• The AIA ABI (Architectural Billing Index) has yet to move to 50 or above, and this condition has lasted (if I’m recalling this statistic correctly) for more than 24 months by now. When that index is below 50, “they say” that it is an indication that business (for Architecture firms) is still in a declining mode. Architecture firms are struggling. Firms in the construction industry are struggling. When you look at the monthly editions of construction industry newsletters, you see mostly “government sponsored” projects highlighted instead of private sponsored (res and non-res) projects highlighted.

• American Reprographics Company (NYSE: ARP) is the largest reprographics enterprise in the world, and, even though ARC has operations in India and China, most of ARC’s revenues are generated in the U.S. ARC’s quarterly revenues peaked in Q1 2008 at $187.4 million, and, since then, declined, consecutively, reaching just under $112 million in Q4 2009. ARC quarterly revenues for Q1 2010 were just above $112 million, in other words, not much better than Q4 2009. Those of you who know the reprographics industry well, very well know that Q1 revenues are supposed to be better than Q4 revenues; in most parts of the U.S., Q4 revenues are traditionally the worst of each year’s quarterly revenues. In addition, ARC does generate some revenues from its Chinese and Indian operations, and the economies of China and India are growing. It would be interesting to compare ARC’s quarterly revenues on a domestic vs. off-shore basis. It is possible that ARC’s domestic (U.S.) revenues in Q1 2010 were less than ARC’s domestic revenues in Q4 2009. ARC will soon be reporting its Q2 2010 numbers, so that should shed some light on “trend”. This paragraph is certainly not a “knock” on ARC, it is simply a picture of ARC’s progress, “now vs. then.” In my opinion, ARC has assembled one of the best management teams ever to grace the reprographics industry, but, no matter how good that management team is, the reprographics business will not be in a position to recover or grow until other factors begin to show positive recovery.

To sum things up, there has not yet been evidence of a recovery in the design/development/construction industry. “They say” that, since our economy is primarily driven by “consumer purchases”, that our economy has to see renewed consumer confidence – and consumer purchasing - in order for there to be a sustained recovery. Dr. Hussman’s most recent article points out that “savings” has grown (meaning that consumers – those that have jobs – are saving more and spending less) and that that actually hurts the economy. Several articles I’ve read this year point to the fact that larger corporations are sitting on (hoarding) lots of cash. Sitting on cash means that they are not investing that cash (in re-tooling their businesses, expanding their businesses, creating momentum for forward growth.) While we may be seeing increased profits, year over year, those profits are mostly coming from cost cuts (including job layoffs and consolidation activities), not from top-line (sales) growth. Top-line (sales) growth has to happen in order for the recovery to sustain itself. Without that (top-line sales growth), there is certainly the chance that we will experience a double-dip recession.

Dr. Hussman pointed out in his most recent article that some say that a double-dip recession is unlikely; they say…. "a few naysayers (like Dr. Hussman) are worried about a double dip, but this can be ignored because double dips are rare."

Dr. Hussman, also said in his most recent article …. “From a Bayesian standpoint (folks, that is “econ-speak”), if you always observe a certain combination of information when X occurs, and never observe that same data when X is not present, then even if X is hidden under a hat, you would conclude that X is most likely there. If I see clowns walking around the grocery store buying peanuts, and there's a big top tent with two unicycles in front of it in the middle of what is usually an open field, I'm sorry, I'm going to conclude that the circus is in town.”

Finally, if the economy is already again in recession or if double-dip recession does happen, what will that mean to the A/E/C industry and to the A/E/C reprographics business and industry???

Even though you may not agree with Dr. Hussman’s current prediction, I urge you to read the two articles I mentioned that are on his company’s web-site. If anything, you will learn some lessons in economics and you will see his point of view about government policy.

Service Point Presentation at Annual Shareholders' Meeting

Service Point held its Annual Shareholders' meeting (2010 Annual Shareholders' Meeting) last week in Barcelona, Spain, and, in conjunction with that annual meeting, Service Point prepared a "presentation" file. If you read Spanish, you will be able to read the presentation. I was unable to find an English language version of the file. I think that the file contains information about SP's future plans and projections.

The file can be located at this Internet address:

http://sps.spsbe.com/WebFiles/countries/sps/docs/es/Junta/2010/Presentacion%20Junta%20Accionistas%202010.pdf

Promoting MPS - Managed Print Services - an approach different than the one suggested in the article that was posted on July 1st.

On Thursday, July 1st, 2010, I posted an article, written by a veteran of the “managed print services” (MPS) business, and, in that article, the author, quite basically, suggests that one should not approach selling MPS services by “saying that” you (the vendor) can cut 30% of the customer’s current cost; in other words, the author was basically saying, “don’t sell price.”

While doing some industry research this morning, I came across an article on ARC’s “thereprofessional.com/” blog-site, and, after reading this particular article, which apparently promotes ARC’s MPS services (even though it does not mention the term MPS), one could easily form the opinion that ARC’s approach to marketing its MPS services is exactly opposite the approach that the author of the July 1st post suggests should be the case.

I always find it interesting to observe the different approaches that companies take when marketing similar or same services.

Here’s the internet address of ARC’s “reprofessional” blog-site …..

http://www.thereprofessional.com/
It says on the site that the reprofessional is a monthly newsletter about document management, digital print technology and printing.

Here's the article that appeared on ARC's blog-site:

Spending Too Much On Print? Receive a FREE Print Cost Reduction Plan
January 2010

The real cost of print management for most companies is commonly invisible. Our experts can help you take control and reduce print costs up to 30% per year.

According to research from IT consultants Gartner Inc., up to 3% of your annual revenue is spent on print activities.
Effectively managing this activity can save up to 30% annually on your print services. Why?

Print is a typically uncontrolled budget item, largely off the radar of high level accounting or operations management.
Given the complexities of print fleet management, most print networks are inefficient. Multi-function printers are rare, printers are not replaced until they malfunction, and a wide range of printer brands increase IT administration and ink/paper costs.

The real cost of print is hidden. Color printing, single-side printing, the steep support costs of using multiple manufacturers, and the high energy costs of older printers all work silently against a company’s bottom line.

How do you take control? Let our experts conduct a no-cost print infrastructure analysis to see how much you can save.

Service Point is planning a capital increase (???)

An article about the capital increase (share issuance) that Service Point is apparently planning to do:

One of my blog-readers brought this one to my attention this morning. This article comes from the web-site of ZEPHYR, http://zephyr.bvdep.com/ About ZEPHYR……… ZEPHYR contains information on M&A activity, IPOs, joint ventures and private equity deals, with no minimum deal value.

Here’s what the article said:

Service Point plans fundraiser:
report, posted on Wednesday, 30 Jun 2010 14:38

Spanish print and reprographics group Service Point Solutions is planning a capital increase that could bring in EUR 10.00 million, according to Expansión.

The group incurred a net loss of EUR 10.02 million in 2009 and has already called for cash this year, tapping shareholders for EUR 21.77 million in a one-for-five rights issue in February.

Its latest planned capital increase could involve a stake of around 11.1 per cent of its post-issue equity, while the stock placement four months ago involved a 16.7 per cent interest.

Like many sectors reliant on a buoyant marketing industry, printers have been hard hit by the events of the last 18 months.

The group, which has service centres across Europe and the US, is engaged in digital reprographics and document and facilities management.

In the Nordic countries it has an online offering known as Repronet. Its international distribution network Globalgrafixnet comprises of digital reprographics companies in 21 countries.

In a Q1 2010 earnings release Service Point said improvement is gathering momentum; at EUR 4.30 million, earnings before interest, tax, depreciation and amortisation (EBITDA) – before non-recurring charges – was higher than it had been for four quarters and 79.2 per cent up on the EUR 2.40 million recorded in Q4 2009.

However, if a non-recurring cost of EUR 1.30 million is accounted for, EBITDA was flat year-on-year.

Service Point has been trying to cut costs and stimulate sales and says the performance of its new customer book is “healthy”.

This is not reflected in Q1 2010 revenue, which was EUR 52.26 million compared with EUR 54.41 million in Q4 2009 and EUR 58.69 million in Q1 2009.

An excellent article about the MPS (managed print services) business

The article below came from this web-site: http://www.imagesourcemag.com/

It is a very well written article and the "points made" in the article are, well, right on point.

MPS: The 30% Catastrophe vs. The Reality
By Tom Callinan, Strategy Development
Category: MPS Industry Analysis | Issue: | Posted Online: Wednesday, June 30, 2010

Many commentators in the MPS space like to talk about the 30% savings companies receive through an MPS agreement. I guess it helps them sell research, advance the theory of displacing printers with departmental MFDs, or helps the weak sales person generate some commission and retain his (her) job for a period.

But I have to ask a simple question, what is the rational to deliberately taking 30% of the revenue out of our industry? Overcapacity and technological improvements are already creating year on year decreases in hardware and aftermarket pricing and A4 is replacing A3 at a lower unit selling price. Those environmental changes should easily drive 10% of revenue per year out of our industry. Over the last two years units sales have decrease by more than 30%; they are gone and probably will never come back. Now we are all going to join in a concerted effort to drive an additional 30% of revenue out of the imaging space? Let’s all go to the jungle and drink some Jim Jones juice!

MPS is not new revenue, simply a revenue shift from transactional to contractual. We are not generating new industry revenue with MPS; different players are capturing the revenue, which is good for those MPS providers in the short term.

As the industry leading MPS consulting firm we have been advocating for companies to adopt an MPS strategy for nearly the past five years. Nevertheless, when you do launch your MPS strategy there is no reason to lead with a value proposition of saving a company 30%. Managing copiers, printers, scanners, and fax units is not a core competency for most companies; it is a nuisance area. Tying up valuable IT employees to remove misfeeds, install maintenance kits, or replace feed tires irritates CIO’s and IT directors who do not have enough resources to devote to their more mission critical projects like business intelligence, security, virtualization, and unified communications. Therein lies the value proposition—you build a business case for outsourcing.

I led a $225 million outsourcing business and that was simply the services revenue; there was an additional $60 million or so in equipment sold into the facilities management (FM) accounts. A portion of that $225 M was “fleet management” agreements. There are industry commentators who want to tell you MPS is not FM, but curiously those commentators have no FM background so how could they possibly make that statement? We didn’t sell outsourcing by telling companies we would save them money. At times it cost more money to outsource but the customer outsourced because we took away areas of their business that were not core competencies: Areas that distracted them from their business. Nuisance areas like imaging and printer fleets to most companies.

There were many FM agreements that included “gain share,” where working with the customer we drove efficiencies that resulted in lower cost that we shared with the customer. But the key there is the phrase “working with the customer.” You can do the same with an MPS agreement. Strategy Development’s three phases of MPS are manage, optimize and improve. Manage comes first followed by optimize and improve. Working with the customer—after you are generating revenue from an MPS agreement (manage)—you can help your customer make a decision on the lowest TCO device for each location that will provide the required functionality. This is where the cost savings come from, although reaching 30% is a stretch.

The most successful MPS companies in the country are not saving their customers 30% to get them to sign a contract. They are building business cases that support an outsourced agreement with their customers.

Get into MPS but make certain you truly understand the MPS space so that you maximize revenue and margins, it can be a significant revenue driver. But the opportunity to capture significant new revenue combined with the 30% decline in MFD unit sales, which is really hurting the core copier business, has brought out every snake oil salesman in the land with the latest “elixir” for an MPS program. Choose wisely as any further delay in launching a successful program will be critical. Once those prospects are another company’s customers they will be locked into contracts that will be difficult to change.

Tom Callinan is the founding principal of Strategy Development, a management consulting firm for the technology and outsourcing space specializing in business planning, sales effectiveness, advanced sales training, and operational and service improvement (www.strategydevelopment.org). From 1998 – 2005, Callinan was an executive with IKON Office Solutions, most recently vice president and general manager of IKON’s largest business unit with revenue of $1.4 billion. Prior to IKON, Callinan was the founder and CEO of Copifax, Inc, a copier dealership that was recognized with numerous awards including inclusion on the INC 500 list of fastest growing private US companies. Copifax was acquired by IKON in 1997. Callinan graduated with high honors from The Wharton School, University of Pennsylvania. Tom can be reached at callinan@strategydevelopment.org or 610.527.3317.

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 (www.servicepoint.net) 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.