New York-based private equity giant Apollo Global Management is investing $300 million (approx. €275 million) in the international printing group, Cimpress, which has evidently been heavily affected by the coronavirus pandemic.
Cimpress employs more than 10,000 people in a dozen companies worldwide, including Vistaprint, Wir machen Druck, Druck.at, easyflyer, National Pen and BuildAsign. The Nasdaq-listed company, a provider of customized printing, merchandising and marketing products, officially moved its headquarters from the Netherlands to Dundalk in the Republic of Ireland in early 2019 for tax reasons.
According to a Cimpress press release from April 29, 2020, revenues, EBITDA and cash flow have developed in line with expectations through the end of February. However, due to the impact of the COVID-19 pandemic on Cimpress’ business customers around the world, the demand for printed products has decreased since March 2020. Sales declined by 30% in March and by approximately 65% year-on-year in the weeks of April, although the impact of the pandemic on sales differs significantly by company, country, product line and week.
As the duration and extent of the pandemic is not known, Cimpress took precautionary measures in March and April 2020 to conserve liquidity and maintain operational continuity as far as possible, in addition to significant cost reductions. This is both good and long-term oriented.
Juggling of finances
I will now try to explain the complex interrelationships in a reasonably understandable way. On April 28, 2020, Cimpress changed the contract of a senior secured loan. Against this background, a $300 million procurement contract was signed the same day with Apollo Global Management. Cimpress intends to use this amount to repay a portion of the long-term loan and to pay fees and expenses incurred in connection with the financing of the amendment described above.
Cimpress’s shares, which had fallen nearly 50% between early March and April 28, rose approximately 23% after the arrangement with Apollo. The market capitalization of the company was estimated at approximately $1.7 billion on April 28.
Apollo is no stranger to the printing industry. Only recently, it acquired the online photo service providers, Shutterfly and Snapfish, and merged them into one company. Apollo will now receive seven-year warrants to purchase the equivalent of just under 4% of the outstanding shares of Cimpress and will hold a stake in Cimpress of less than that value.
With assets in excess of $330 billion, Apollo has been one of the most active investors in recent weeks after the coronavirus sent markets and the economy into turmoil. Since the beginning of March, Apollo has invested more than $10 billion in private equity and loans.
Cost reduction measures
Cimpress, like almost everyone else in the industry, is currently under considerable pressure and since March has reduced advertising, terminated fixed-term contracts, and increased or decreased the working hours of its production and customer service teams in response to the sudden drop in sales caused by the pandemic.
According to the company’s information dated April 29, fixed costs are to be reduced by approximately $140 million on an annual basis. This includes significant reductions in travel and training costs, strict hiring restrictions and obligations to external service providers. Cimpress also intends to take advantage of government support programs to minimize a significant portion of personnel costs. In addition, Cimpress has proactively engaged with suppliers and landlords to delay more than $20 million in payments to provide financial flexibility.
“Although recessions are painful, they also create opportunities and competitive advantages for companies with strong business models that improve customer value.” – Bernd Zipper
In these unusual pandemic times, protecting the health and safety of its employees was (of course) a top priority for Cimpress. Those who are able to do so work from home. Where this is not possible, such as in manufacturing or customer service functions, Cimpress companies ensure that the relevant health and safety guidelines are followed. Several Cimpress manufacturing and service facilities have been temporarily closed, but the vast majority of operations have remained open or have been reopened.
In addition, Robert Keane, CEO, Chairman and Founder of Cimpress, is already thinking ahead, and is optimistic. “Cimpress plans to continue to invest in technology, quality and cost improvements, data and analysis, new products and the recruitment of talented team members. We have positioned Cimpress to stay on the offensive during and after this pandemic by taking steps to continue funding key projects that we believe will benefit our customers and long-term shareholders,” Keane said.
Preliminary financial results for the 3rd quarter
However, like the many thousands of other printing companies, it must first get through this crisis. Although a quarterly review does not provide any definite findings, it does at least provide an orientation for risk assessments.
The results of Cimpress for the first three months of the year (the 3rd quarter of the fiscal year of Cimpress) are not yet final but show total revenues of about $598 million – a decrease of 10% compared to last year. Consolidated sales were still up 2% year-on-year up to February but fell by 30% from March onwards.
This leaves an operating loss of approximately $88 million, including depreciation of approximately $101 million due to the changed outlook in several business areas. Adjusted EBITDA of approximately $71 million represents a 20% year-over-year decline. Cimpress is also reporting total debt of $1,672 million, which is offset by cash balances of $228 million.
Further details can probably be spared here – they are all likely to be a waste of time. On May 5, 2020, Cimpress will announce its financial results for the 3rd quarter of the fiscal year 2020 and its expectations for the 4th quarter. Cimpress explicitly points out that investors should no longer rely on the company’s previous forecasts.
VIDA shares sold
The sale of VIDA shows just how serious the need at Cimpress really is. In July 2018, Cimpress acquired a 74% stake in the successful platform for on-demand production of textiles. The new acquisition, worth around €25 million ($29 million), remained an independent brand in the Cimpress portfolio. “Cimpress, our majority shareholder and investor, was hit hard by Covid and has informed us that they have had to sell their stake in VIDA,” writes Umaimah Mendhro, founder and CEO of VIDA, to his employees. “Cimpress had bought out all our previous investors, including Google Ventures and Y Combinator, in July 2018 and is the only external investor in VIDA. However, there are no potential buyers in this market, so we are offering to buy back our shares from Cimpress.”
On April 10, the deal with Cimpress was closed. VIDA is now 100% owned by the VIDA team and its CEO. Of course, it is unknown what price was paid.
Cimpress is the world’s largest online printer with millions of customers and $2.7 billion in sales, and in my estimation the market leader in mass customization. Demand for these products has grown significantly over the last twenty years and they are critical in both stable and difficult times. Although the current crisis situation is painful, it also offers opportunities and competitive advantages for companies with strong business models that improve customer value. Incidentally: if in the past some online printers repeatedly boasted that they were completely self-financed – such a crappy virus can change everything.