Business

Open Season on Design Firms

Global Imperatives and Collaborative Efficiencies Spur Acquisitions Fever

Over the past few years, package producers, engineering, and prepress firms as well as other design firms and CPG companies have all been acquiring independent design firms. David Luttenberger, CPC, director, Packaging Strategies, West Chester, PA, says this has been an ongoing trend that's flown below the radar for several years, but it has "just recently been outed." The need to grow to serve clients worldwide, economies of scale, and collaborative efficiencies are the most frequently cited rationales for industry-wide "acquisitiveness."

Notable acquisitions this year include: 3M buying Sanford, NC-based SCC Products Inc. and JJ Converting LLC; Sonoco's bankruptcy auction win of certain point-of- purchase display and packaging fulfillment assets of Markson Rosenthal & Co. as part of its Chapter 11 filing; MeadWestvaco's adding Los Angeles-based DZN to its AGI Media packaging division; TricorBraun buying Buffalo-based FWJ; Schawk's Anthem division purchase of WBK, Cincinnati; and One80 Design, and Lime Ltd., both in New York City, joining Cincinnati-headquartered laga.

The well-established laga design firm felt they needed more structural design innovators on their side, so they acquired One80 Design, based in New York City.

"Progressive thinkers are always looking for ways to serve customers, create internal efficiencies—read: profit centers—engage in collaborative production, and most importantly, differentiate their portfolio of offerings," Luttenberger says. "Today's progressive thinkers—MeadWestvaco, laga, TricorBraun—grasped several years ago the concept that 'proprietary' no longer meant 'alone.' Collaboration creates economies and efficiencies of scale that result in reduced time to market and potentially greater ROI across an integrated value chain."

Is it a true trend?

Ted Mininni, president of Design Force Inc., a metro New York area brand identity and package design consultancy, expects some of the larger CPG companies will continue to make design firm acquisitions in the near future. "This trend is indicative of a repositioning effort by many companies to become more responsive to a fast-changing marketplace," says Mininni.

Global competition is coming from fast-developing economies in Asia, challenging Western CPG companies to innovate and position new products with greater speed, cost effectiveness, and agility than ever before. "Consumer demands are changing fast, too," Mininni says, "only adding to the pressure companies are under to deliver innovative products based on true customer insights."

When certain design firms emerge as leaders in their sectors, it may be natural for CPG companies that have collaborated with them and achieved success to acquire them. "This allows the consultancies' expertise to give them much stronger internal capabilities to not only react to changing market conditions quickly, but to build collaborative, innovative environments that will become much more proactive to the market," Mininni points out, citing how BMW Group acquired Designworks USA in 1995 as an early successful example.

Across the board, acquiring companies point to growth and an expanded ability to serve their customers as their principal motivation. For example, Keith Strope, TricorBraun president and CEO, explains: "The acquisition of FWJ brings more resources and value to our existing customers and our future customers."

Over the years, TricorBraun has grown steadily through acquisitions. The one-stop company is a combination of design, engineering, and global sourcing, where designers are expected to know manufacturing and process capabilities.

With its growth coming both through acquisitions and organically over the years, TricorBraun is a combination of design, engineering, and global sourcing and distribution. Suzanne Fenton, CPP, director of marketing at TricorBraun, adds: "Many companies are outsourcing design. By adding design to our services, we give them a one-stop source. In addition, they are more likely to be able to manufacture the rigid packages our design group creates. They understand process capabilities. We call it 'informed creativity.'"

A coming wave?

Schawk collects their design firm and personnel acquisitions under the strong Anthem brand.

Anne Marie Pagliacci, executive vice president and group managing director, Anthem, A Schawk Strategic Design Company, says: "The synergy we found with WBK is first that it is a design firm focused on packaging. Another sweet spot is their skill with other mediums—like point-of-sale and websites—that complements what we already do and allows us to offer additional services globally." She goes on to say that WBK was attractive because the company had developed a proven process for innovation.

Today, Anthem is one of three business units of publicly traded Schawk Inc. in Chicago. Pagliacci explains that some 15 years ago Schawk, then primarily a prepress company, decided to move upstream by adding production art services. Then about 10 years ago, the company acquired its first design firm. "We did this after discussions with our client base," she says. "They expressed the desire for a single point of contact. That started us on the path to acquisitions. Today Anthem represents a collection of acquired design firms as well as strategic start-ups."

Julie Anixter, chief marketing officer at laga, a Design & Innovation firm, says that laga's acquisition of One80 Design was possible because of their many synergies. "Most important, however," she says, "is that we share a similar mindset in that we were both dedicated to financial results for the client...and besides, we liked the people and felt the working chemistry would be good."

laga has been doing structural design work for decades but sought to add capabilities in a fast and smart way, and now the company employs over 180 people. "We're looking at the design business in a new way," says Anixter. "The days of presenting something and implying 'I'm the designer so you should like it' are over."

"In doing an acquisition, we focus on cultural fit as solid as the talent," Pagliacci says. "We wouldn't accept one without the other." A collaborative, approachable, and customer-centric, solutions-driven culture is most desirable, where there is no time for arrogance and high maintenance. Pagliacci also adds that the company spends a good amount of time focusing on the integration process, because their ultimate goal is to retain talent.

Is it prudent to resist?

Not all independent designers see the merger trend as positive for the industry. Tom Newmaster, vice president of operations/partner of William Fox Munroe in Shillington, PA, tells of an approach three years ago with a low buyout offer from a supplier, who even resorted to fear tactics. Newmaster says the tactic did not work, and they did not lose any clients because of it.

Newmaster's take on the reason for certain acquisitions is somewhat different, as he believes that film suppliers and printers are trying to replace the business and revenue that is leaking to places like China. Newmaster asks, if they cannot compete with China in their own 'specialty,' how they can possibly compete with the new products/services they just purchased? "I feel that this is all a step toward making design a commodity product," says Newmaster. "It's not. Price is very important, but it's not the only thing to consider." He also notes that many consumer goods companies still do not yet want to put all their eggs in one basket with one-stop shops.

Despite his misgivings, Newmaster sees the acquisition trend continuing, as do many in the industry. Ben Miyares, vice president of industry relations at the Packaging Machinery Manufacturers Institute, Arlington, VA, notes: "Yes, this trend will continue as customers are looking for consultative advice from vendors as well as product. The packaging business model is changing, with expertise shifting to the vendor and away from the customer."

Strope, Pagliacci, and Anixter all anticipate more merger news in the not-too-distant future. Pagliacci could be speaking for all of them when she says: "We are clearly pursuing strategic design and consulting as an area of growth. There are upcoming acquisitions that you'll hear about."