Paragon has become a major beneficiary of a shakeout in the US print industry. It has paid $42.3 million for RR Donnelley's Global Document Solutions business, an operation that dovetails with Paragon’s own business support services focus. GDS reported sales of $270 million in 2018, though this has dipped since, reporting revenues of $185 million at the nine month point of this financial year.
RR Donnelley will use the proceeds to reduce debt while Paragon gains a business with operation in the UK, France, Spain, Netherlands, Poland and Italy with around 1,500 staff. Patrick Crean, Paragon chairman and CEO says: "We are delighted to acquire RRD’s GDS European businesses and are pleased to announce that we have also entered into a strategic alliance with RRD, which will expand the offerings both companies provide to clients.”
The deal increases Paragon's strengths in customer communications and increases its ability to cope with multinational customers.
The deal continues the US company’s withdrawal from Europe (having sold magazine and catalogue printing facilities to Walstead last year). It is, however, investing in Asia with a major new factory in China and investment in facilities to handle the 2020 US census, pushing spend in the quarter to $107.4 million ($72.7 million).
Debt levels are down by $148 million to $2.03 billion before any contribution from the GDS sale.
RR Donnelley appears well placed compared to Quad/Graphics, which earlier in the summer had to call off its $1.4 billion acquisition of LSC Communications, has reported a Q3 net loss and announced it is putting its book printing division on the block. Talks are already underway about the $200 million business.
While the failure of a merger that would be a “defining moment” for Quad is expensive in terms of a $60 million compensation payment to LSC, the company is pushing on with the Quad 3.0 transformation.
The drop into loss has alerted corporate lawyers into considering a class action law suit against the company for allegedly misleading investors by not giving due warning of the losses and the extent to which the company is suffering from industrywide pricing pressure.
Quad CEO Joel Quadracci explained that part of the reason is that wages were increased, which added to costs immediately, but productivity gains take time to come through.
The company has adopted a strategy of paying more for staff and has enjoyed greater retention of people, with an impact on recruitment and training costs, and was now noticing an improvement in productivity which is on target to compensate for the increased wage bill during 2020.
By Gareth Ward