The paper merchanting game is a tough old world. But the move by BJ Ball to roll up CPI, Raleigh and Focus Paper in Australia shows there are opportunities – if the strategy is right.
It would be a bit premature to check the barometer of success for this mega-merger, but we do know the machinations that have led up to this point. BJ Ball already owned go-getting merchant Focus Paper, having acquired it last November. In January, it pounced on CPI. Since then, there have been a number of hurdles, such as ACCC clearance and shareholder approval. And now it is a done deal. The final reveal was that the three main subsidiaries – CPI, Focus and Raleigh – would be merging in Australia under the BJ Ball umbrella, to be led by Craig Brown, now general manager of Australia.
Brown is no stranger to merger and acquisition activity in the paper world. He has spent two decades in merchanting and been through a number of takeovers. Brown believes that merging the three Australia paper companies was the only way to go. “I don’t think dual merchanting works or has a place in the market. I am delighted we are not doing it.”
The conversation keeps coming back to customers – how the new regime will improve service and offer a wider rage of products. BJ Ball’s sales force will all have access to all stocks, giving customers a more streamlined experience, rather than have multiple reps banging on their doors. Raleigh specialises the kinds of fancy stocks that are more targeted toward ‘specifiers’, such as designers, while CPI and Focus are all about the white grades that printers run every day. The combined entity will offer the whole spectrum of these products.
On the day that all this was revealed and the acquisition officially completed, ProPrint sat down with Brown, Peter Friend-Ngui, who has been made national marketing manager for the combined group, and group chief executive Andrew Bull, the mastermind of the plan, who had flown across the ditch to sign some final papers and complete the merger.
There’s a frenetic energy to Bull, but one that can obviously be channelled. A merger of this scale in a sector like paper and an economy like this takes bravado – and balls – but brains as well. He has, if you pardon the pun, masterminded a very bull-ish manoeuvre.
Private equity
Any takeover of this size needs dollars behind it. For the past decade, the money to roll up print and paper companies has largely come from one place: private equity (PE). Bull is no stranger to this source of capital. “In 2001, private equity was introduced to the management of paper companies. That was the start. Prior to that, people like me didn’t know where to access the funds.”
One of Bull’s early dealings with PE funds didn’t go quite as swimmingly as he’d like. In 2002, he tried to acquire BJ Ball and Raleigh from Carter Holt Harvey with PE funding from ANZ but was beaten out by a bid from Red Paper, bankrolled by Archer Capital.
In 2005, Bull was at it again, joining with Brown and Archer Capital to successfully take over BJ Ball. Then, last October, the New Zealand paper giant was acquired by Maui Capital, run by directors with a Goldman Sachs pedigree.
So has Bull’s enthusiasm for PE-funded buyouts been borne out on the balance sheet? “When I took over BJ Ball, it turned over $50m,” he says.
According to Maui Capital, when the PE fund bought BJ Ball last October, it was turning over $300m. Following the CPI deal, reports suggest it will reach $800m.
Due to some less-than-lucrative investments in print groups, PE funding cops a bad rap in the industry. But when it comes to deals of this scale, private equity is not just one option, it is the only option. The money in this deal comes from Maui, so there is no doubt it is a very interested party. But BJ Ball’s management team stress that they are in the driver’s seat. Maui may comprise 80% of the funds, but management accounts for the other 20% and this has been a long-term strategy driven by the men running the combined group. Brown says that while Maui has “enormous interest” in the company, “they don’t drive the strategy. The strategy is from the management team.”
He says Maui is “a silent partner” of sorts, assisting the managers, “but not actively involved”. The strategy is driven whole-hearted by “paper people”, says Brown.
The team stresses another point about leadership: the Australian operation is driven by Aussies. It is not an invasion from across the ditch. Brown himself does hail from that land over the Tasman, but he has spent the past five years calling Australia home. His paper credentials are sound, both here and away. The bulk of his career was with Spicers in New Zealand, and more recently with what is now called the BJ Ball Group. Most recently, he was general manager of Focus Paper.
For those unfamiliar with the NZ landscape, BJ Ball is a force to be reckoned with. But now Australia makes up the largest part of its revenue. Brown says that while BJ Ball is extremely positive about the opportunity in Australia, it is not going to be a walk in the park.
“New Zealand, as a smaller market, has probably gone through consolidation in many industries a lot quicker than a big market like Australia.
“But Australia is almost a two-market country: the mining industry and the rest of us. For the rest of us, business is tough. I’m not sure it is too different from New Zealand. Business has been challenging and will remain challenging in Australia, unless you are in mining or minerals,” says Brown.
Needless to say, BJ Ball will be hungry to generate business and start proving to the market that such a massive merger is going to be successful for everyone involved – customers, managers and financial backers.
Family values
The first step for Brown is to bring together the disparate parts of this new blended family. Raleigh and CPI shouldn’t be too much trouble seeing as they were already sister companies (though insiders tell ProPrint the merchants haven’t always been the happiest of bedfellows). But not long ago, Focus and CPI were staunch rivals in a crowded market.
Brown points out that this is not one competitor taking over another, but a whole new brand. Everyone has the same opportunities. No one is being left out in the cold (well, almost no one – but more on that in a moment).
“We have a blend of people in senior management and we have a blend of people in other areas of the business. The job for us is to build a new company brand: BJ Ball. That is more palatable than if we became CPI or Focus. It is a much easier headspace than a takeover from Focus or a merging with CPI. The message is simple – it is a new brand. We are all in it together and will make it a success,” says Brown.
Most people will know already that the biggest names have already left the business. Bernard Cassell and David Bull were CPI in many people’s minds, and both have been casualties of the takeover. Other names who don’t appear in the BJ Ball Australia corporate directory are Raleigh Paper general manager Peter Murphy, who retired, CPI executive director Denis Goodrem and CPI general manager Greg Street.
The biggest names at CPI are no longer there, but the new mix strikes a balance. Queensland general manager Paul Hardie is ex-Focus, as is New South Wales’ David Chatillon and South Australia’s Kerry Saul. Meanwhile, Victorian general manager Michael Byrne and Western Australia’s Stephen Jeffery both hail from CPI.
Brown says all of the above were chosen because they are best suited to fit that strategic role.
It’s a major overhaul of the way things were done before. It goes without saying that if you bring together three companies with three sets of management, sales, customer service and the rest, there’s bound to be a lot of double-up, which explains the 40-odd job cuts that followed the takeover. There has also been a shake-up of the structure of CPI, by far the largest of the three merged businesses.
CPI has been delisted from the ASX, and its corporate structure was also dismantled along with the removal of the directors. The new regime is a state-based business run with a large degree of autonomy by those general managers, as opposed to the past, when CPI’s directors ruled from the top.
With the state focus in mind, one continuation of the old policies is the warehouse rationalisation plan. This had been the lynchpin of former managing director Bernard Cassell’s cost-cutting strategy to rescue CPI from one set of poor results after another. Some of that work had already been done under the old management, such as bringing South Australia under one roof, while Tasmania is already in one site.
But there is still much to be done in other states. One key adjunct to the CPI plan is that any new premises will need seats for Focus Paper people too,
Brown lays out the progress so far: Western Australia will be in one site in Balcatta later this year; Queensland will move to a new purpose-built facility in early 2012; Victoria will move from three sites into two in the latter part of 2011, both in Braeside; and, as the takeover was cemented, the NSW operation was in the midst of moving its Chullora operation to Prospect, while Edwards Dunlop Office Products will move to the Focus building in Girraween.
Bringing the companies together physically is just one aspect; bringing them together culturally is probably the more important step. Housekeeping things like business cards, truck sides, building signage, stationery – all this needs to come under the BJ Ball banner. Peter Friend-Ngui is charged with pulling together this part of the operation.
It might just be a few logos here, a lick of paint there, but it represents a lot more than that. “It is a major task. From my perspective, we cannot hope to get an integration of this scale right if we can’t get the physical fundamentals right. We can’t get the culture right if we can’t get the physical stuff the same. Our challenge in launching a rebranded business is to show we are heralding a change in the way the business is run.”
He says the ultimate goal of BJ Ball Australia is to move the business to a sustainable platform where it can achieve a set of goals in terms of stability, positivity and business sustainability.
“The big job is to influence and impact the behaviour of every member of the organisation to achieve those goals. Branding is one weapon in that arsenal.”
Making a change
But Friend-Ngui is not so naïve as to think a few new business cards will solve everything. “My belief is it is far more complicated. The name is not going to fix it. The name is a way to herald the changes. The underlying tenet of that change is a recognition that we need to do things better, more efficiently and more cost effectively to secure our place.”
A quick look at the recent past will show the litany of problems that followed CPI and will continue to plague the new owners, at least into the near future. There’s the ongoing legal battle with the former owners of Beaver Press over a Komori Lithrone sold to the liquidated company. There’s another dispute surrounding the collapse of fellow failed Sydney printer Chippendale. And then there’s the biggest of the lot: that $3m unsecured debt to Quality Group, which fell over in June 2010, burning suppliers and other creditors left, right and centre.
Bull, Brown and Friend-Ngui are adamant that the mistakes of the past will not be repeated. Aftershocks may be felt for time to come, but the focus is firmly on the future.
Generating strong revenues with healthy margins must be at the top of the agenda. Servicing that PE finance is paramount. But success will also bring a windfall for customers, says Friend-Ngui.
“Our goals are to more fully embrace technology opportunities and to streamline the supply chain,” he says. Exactly what that means is still being kept under wraps. But it shouldn’t be too much to ask for a sophisticated online ordering system. The print industry has been banging on about web-to-print for a long time, and BJ Ball’s New Zealand website already has a simple paper ordering system. As any printer should know, the goal of automated e-commerce is to take out cost and simplify ordering. Few of BJ Ball’s customers will complain about that. Only time will tell what other bonuses lie in store for the customers of BJ Ball.
BJ Ball management on…
Brown on BJ Ball’s past life
I think the fact BJ Ball has Australian heritage is great. It was founded in 1906 by Benjamin Joseph Ball, selling wrapping paper and twine. People will identify with it. But it has been out of the market for 20 years. We are proud of the Australian heritage but for all intents and purposes, this is a new brand.
Brown on job cuts
That is always the tragic side of any merger. But it has been done for the right reasons. I am comfortable we have a good strategy and our goal is to build a sustainable business that has
career paths for our employees. It is a shame but what we had wasn’t sustainable.
Friend-Ngui on changing perceptions
The name change heralds the fact that changes have occurred. But I would like the market to know that the group of people taking on this challenge know the failings of the past have to be rectified. CPI attempted to be all things to all people but fell down on the fundamentals. So there is a recognition we need to do things simpler and better without the failings.
Bull on making money from paper
To make an adequate return on capital employed in a very difficult sector such as the paper market, the key is to control costs. We are all coming off a much lower volume base now. The cost of paper is down but our costs are up.
Bull on his secret to success
There is one. But I’m not going to tell you what it is.
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