In an effort to fill out the service offerings and geography of its marketing services portfolio company priNexus, New York-based private equity firm Harvest Partners has acquired three add-ons in the $100 billion marketing and communications production services space.
Harvest Partners acquired the three – direct marketing services company Direct Group; customer relationship management services and fulfillment company Direct Fulfillment; and digital and production services company Color by Pergament – for a total of $91 million in senior subordinated debt and new equity from the $360 million Fund III.
Why three add-ons all at the same time? To begin with, although legally they remain three separate transactions, Colin Farmer, a senior associate with Harvest Partners, said Direct Group and Direct Fulfillment (what his firm refers to as the Direct Companies) shared common ownership. Direct Group was a 50% owner of Direct Fulfillment, “so it was really two acquisitions,” he said.
Moreover, he said in explaining the timing of the deals, “It’s the way the deal business goes: you find two high quality companies, and you can’t really put one of them on the backburner. It also helps with our financing to have more purchase price being put together at the same time.”
The Direct Companies deal was between six and nine months in the making, while Pergament took longer, about a year in total.
Harvest Partners founded priNexus in late 1999 in conjunction with management to build a marketing communications company that provides the design, creation and distribution of electronic and printed marketing materials. priNexus made its first acquisition in November 1999 with Halo ISDG of Atlanta; in April 2000 it acquired Connecticut-based Finlay Printing; then in January 2001 it acquired Tukaiz Communications of Illinois.
“The intention is not to [combine] a bunch of companies that all look alike, but to create a company to serve customers more efficiently by aggregating the verticals,” said Farmer, explaining that the verticals include creative, pre-press, printing and fulfillment. “[We also want to] be a one-stop-shop for our customers to take time and costs out of the equation,” he added.
Customers include middle-market to Fortune 500-type companies in financial services and consumer products.
Farmer defined the marketing and communications production space as any collateral material that a company will use to build branded revenue: catalogs, brochures, websites, interactive material, kiosks for trade shows. He said it is not only a broad space, but a fragmented one. For example, there are more than 50,000 printers in the U.S.
“We’ve filled out very nicely the geography we were looking for in the Northeast in the Boston to [Washington,] D.C. corridor [with these acquisitions]. We now have a full-service capability in that part of the country,” said Farmer, adding that the Northeast and Chicago make up more than 50% of expenditures on marketing communications materials. The company will look to expand geographically to the West and Southeast eventually.
In March, Harvest Partners acquired residential building products company Associated Materials for a total of $436 million. The firm purchased all of Associated Materials’ outstanding shares for $361 million, or $50 per share, as well as the company’s outstanding senior subordinated notes for $75 million. In October, the firm bought medical equipment provider Medi-Rents for an undisclosed amount.
Harvest Partners was founded in 1981 by Harvey Wertheim and Harvey Mallement. The firm has approximately $1 billion in invested and committed capital, and invests primarily in middle-market companies.