Major acquisitions are transforming the printing ink industry.
Sun Chemical, the European market leader which has had a share of total sales much higher than its rivals in the region, will now be confronted with more powerful competition from XSYS Print Solutions, the second-largest player, following XSYS' merger with Flint Ink.
Other changes should give more opportunity for the emergence of strong specialist operators, while there could also be more scope for niche suppliers.
There could be even more restructuring in the near future, particularly in the fledgling digital printing market, where levels of profitability are high enough to attract interest.
The latest series of mergers and acquisitions has raised concerns among some sections of the European printing industry about the dangers of a small number of ink producers having even more dominant positions in important sections of the market. At the same time, ink makers are becoming anxious about the level of consolidation among both suppliers and customers.
"Consolidation is not necessarily a bad thing," said a senior executive of one European printing industry supplier. "Larger players will have more purchasing power over raw materials, which will help them to lower production costs. They will have higher margins which should help them to both lower their prices and to be more innovative."
XSYS and Flint Ink
The merger of Stuttgart-based XSYS Print Solutions and Flint Ink of Ann Arbor, MI, which in mid-August had yet to be approved by the antitrust authorities, is by far the largest of the latest consolidation initiatives. It creates a trans-Atlantic ink producer with sales of 2.1 billion [euro] ($2.6 billion), a large portion of which is in Europe, where Flint Ink's operations have been run by its subsidiary, Flint-Schmidt, which has its headquarters in Frankfurt.
The deal highlighted once again the degree to which equity funds are currently playing a pivotal role in the restructuring of the European graphics industry and its suppliers.
The combined XSYS/Flint Ink entity will be owned by CVC Capital Partners, which acquired BASF Drucksysteme and ANI Printing Inks to form XSYS in late 2004. Besides acquiring all the shares of Flint Ink, CVC has also purchased the minority shareholding in Flint-Schmidt held by the Schmidt family.
The London-based equity fund has acted quickly to create in XSYS/Flint Ink the second largest ink manufacturer in the world behind Sun Chemical in a market in which Christian Wildmoser, CVC's managing director, says size is of "critical importance" for success.
In Europe, the gap between the first and second player in the ink market will contract, with the newly enlarged XSYS gaining a 25 to 30 percent share of total sales against Sun Chemical's 35 to 40 percent.
"This kind of consolidation can only be good for the ink sector," said Bertil Ahlberg, XSYS' marketing director. "Production costs will come down because the bigger group will have more purchasing power with raw material supplies and there will be less overcapacity."
The impending integration of XSYS and Flint Ink demonstrates how much trans-Atlantic consolidation has been taking place in ink production over the last few decades.
XSYS' roots cover approximately 15 companies in Europe and North America, including, on the ANI side, Sadolin, Lindgens and Trenal in Europe and Louis Werneke in the U.S. BASF's acquisitions have included K+E of Germany and Inmont in the U.S., whose North American activities were later sold to Flint Ink.
In Europe, Flint Ink established a strong presence in early 1998 when it acquired Manders plc of the UK, which itself was an active acquirer. Earlier, Manders had bought Premier of the Netherlands, Croda Inks and Ensor Printing Inks of the UK and Klintens of Sweden, as well as Morrison Inks in New Zealand.
In 2002, Flint Ink took control of Gebr. Schmidt GmbH of Germany, another family-owned ink maker, to set up a European operation with 13 production sites in eight European countries.
"Consolidation in the European ink sector has really gathered pace in the last two to three years," said Mr. Ahlberg. "It had to happen sooner or later. The customers of ink makers were becoming fewer because there was so much consolidation in industries like packaging and publishing. They preferred their suppliers to be large. Ink producers were suffering from poor profitability because they were not strong enough to gain price increases from their customers."
With the addition of Flint-Schmidt's operation, XSYS has a broad geographical spread across Europe, especially in northern markets. Besides its biggest market of Germany, it is now a big player in the UK, the Benelux countries, Scandinavia, Italy, Spain and parts of Eastern Europe.
The former distributor-based sales network of BASF Drucksysteme and Flint-Schmidt in Eastern Europe is likely to be changed to one of company-owned national sales offices, similar to the sales structure in much of Western Europe.
However, the assimilation of XSYS and Flint-Schmidt into a single entity in Europe will take time. The integration of BASF Drucksysteme and ANI into a homogeneous organization has still not been completed.
Furthermore, combining the XSYS and Flint-Schmidt activities in Europe will be more complex than the amalgamation of the two businesses in the U.S. Flint Ink's operations in North America are likely to remain relatively intact because XSYS did not have a large U.S. business.
"Much of the integration work looks likely to be done in Europe," said Mr. Ahlberg. "There is not much of an overlap in production plants and lines. But there will have to be changes in the way some managerial, sales and other administrative jobs are organized."
Sales in Europe, which will be around half the new group's total revenues, will be concentrated in bulk supplies of inks for publishing and packaging customers.
Approximately 60 percent will be in publishing, where XSYS takes over from Sun Chemical the market leadership in Europe of newspaper inks. Ironically, since the two companies will have approximately 75 percent of the market between them, both could now lose sales. Newspaper companies will want to encourage smaller players to expand in the sector so that publishers have a choice of at least three suppliers.
Huber Group and Siegwerk Group, both headquartered in Germany, could benefit the most since both are thought to have sufficient production capacity to increase their output of newspaper inks if necessary.
The increased consolidation in newspaper inks could provide an opportunity for Micro Inks of India to gain a foothold in the European newspaper market. It has recently recruited Jim Mahony, formerly chief executive of Manders plc and an experienced ink executive, for its European operation.
Packaging Ink Industry
In the packaging inks sector, which is relatively fragmented compared to the newspaper ink segment, XSYS will be a stronger force in Europe. But it will be confronted with stiff competition from Siegwerk, now a much more powerful player in the market following its acquisition in June of the packaging ink business of SICPA.
As a result of this acquisition, approximately 80 percent of Siegwerk's sales of 770 million [euro] ($940 million) are now in packaging, which the company said makes it the second-largest global ink producer in the sector behind Sun Chemical.
Two-thirds of the enlarged operations of Siegwerk are in Europe, and it has a much stronger presence in Asia, where it now has sales of approximately 85 million [euro].
For SICPA, the divestment enables it to focus entirely on the fast-growing and more profitable security ink market, which it is thought to have accounted for less than 40 percent of its previous annual sales of approximately SFr 1 billion ($790 million).
Although SICPA becomes a small but leaner business, it now has a big cash pool to finance an expansion through acquisition in security inks, particularly in the burgeoning segment for inks to combat counterfeiting of branded products.
The deal between Siegwerk and SICPA underlined how much the longer term trend in the restructuring of the European ink industry is toward greater specialization.
Earlier in 2005, Fuji Photo Film Co. of Japan acquired Sericol of the UK, the world's largest producer of screen printing inks, and whose rapidly growing activity in UV-curable inks for large format ink jet printing fit in well with Fuji's plans for a broader operation in the imaging sector.
Suppliers of additives and ingredients to ink makers have also been active in carving out bigger niches for themselves in areas like resins and pigments. The latest expansion move in this field has been the acquisition by Altana Chemie, a German specialty chemicals company, of Eckart GmbH, a leading product of metallic effect pigments and metallic inks which had sales of 302 million [euro] and operating earnings of 65 million [euro].
"Metallic effect pigments are a high growth sector which can generate good profitability as long as you are willing to invest in R&D and services, which we will be doing," said Matthias Wolfgruber, president and chief executive of Altana Chemie, which supplies varnishes and additives to ink producers.
"Ink makers are always looking for new technologies," he added. "We aim to be fast and flexible enough to provide the innovations they need."
Ink companies in Europe will be hoping that the emergence of bigger and more robust players in its sector will help the industry to become more profitable.
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|Title Annotation:||european Report|
|Date:||Sep 1, 2005|
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