American Greetings Take-Private Is Chance To Retool An Aging Business
American Greetings’ announcement last week that it will be taken private by the Weiss family represents a chance for an established business to find new ways to cope with the digital age.
It’s not unusual for founders to believe their companies are not being valued appropriately by the public markets. Excluding debt and including the dividend, the deal values American Greetings at about $580 million, a 13 percent premium, to the share price on the day of the announcement.
Mark Hahn, CFO of FLM Graphics and publisher of The Target Report, which tracks M&A in the paper and printing industries, said “the valuation (offered for American Greetings) doesn’t seem very high.” But he added: “It does seem as if they’re catching a falling knife.” American Greetings did not respond to a request for comment.
American Greetings is the third such attempt by the founders of a well-known US company in recent weeks.
In February, Michael Dell confirmed an offer to buy out his PC company for USD 24.4bn alongside Silver Lake Partners, which attracted competing bids from Carl Icahn and Blackstone. The same month, Barnes & Noble chairman and founder Leonard Riggio announced he is interested in buying the company’s book business and website, but not the Nook tablet unit.
Like American Greetings, Dell and Barnes & Noble are in industries that are struggling to adapt to new technology, particularly the transition to mobile devices.
American Greetings is essentially a paper-based business though it does offer electronic delivery of cards and musical cards, Hahn said. “I doubt that paper cards are going away. The question is when does the market find a bottom for those paper-based products.”
Dick May, managing director of American Working Capital, a private equity firm in Los Angeles and Chicago, said the family that founded American Greetings is taking advantage of low multiples in an out-of-favor industry, as well as inexpensive debt financing to bet on its future. “A huge block of family shares is backing management. To me it makes an awful lot of sense,” May said.
American Greetings’ market – printing of greeting cards and retail stores – has suffered a substantial disruption in the digital age. Now, May said, its customer demographic is bifurcated, with the 40+ crowd still gravitating to traditional greeting cards while younger people prefer electronic greetings. As a result, printed cards are a declining market.
Being private will enable the company to take its time making the necessary changes to compete, or so the theory goes. During this time they can make long-range investments in the company without worrying about quarterly profits. The company’s chief rival, Hallmark, is also in private hands, May observed.
“PE has a long history of successfully take the company private out of the glare of the public arena,” said investment banker Ken Marlin of Marlin & Associates. At the end of the holding period, when it’s time to exit, they frequently take such companies public again, he noted. Whether or not this happens with American Greetings, the process of going private should give it time to augment growth so the family can decide what to do next, he said.
Of course, in the case of American Greetings, instead of a private equity firm, the founding family is teaming up with a subsidiary of privately held Koch Industries, which is contributing $240 million for non-voting preferred stock.
May predicted that some kind of employee stock ownership plan could very well be an element in the structuring of the American Greetings buyout. “I’m sure the family believes the future is brighter if employees had a vehicle where they could invest side-by-side. That’s a good outcome.”