Friday, October 26, 2012
Joint Ventures, Mergers, Acquisitions & International Partners, still Positive in labels.
Joint Ventures, Mergers and Acquisitions, etc. seem to be the topic of discussion when different members of the self adhesive label industry meet these days. These takeovers and alliances happen or become predominant in different situations and circumstances. In a particular scenario when times are bad, demand is down and business owners find that operating margins are low, demanding a need to restructure, look for an exit route or join partners who can bring in value to the operations. In another scenario when the going is very good, the growth is consistently in double digits and larger players are eyeing the market, at this time business owners either get a good price and call it quits or partner with the larger players with global presence to achieve a situation of monopolistic leadership. In India the situation is slightly different, the basic concept of double digit growth is relevant yet the industry is in a rather nascent stage as compared to international markets. Single owner companies, who are rather small as compared to large international label printing entities, are at the forefront of this industry offering a readymade platform to those who wish to enter the Indian markets. Big international label printing and packaging products manufacturing companies who realise that the large Indian literate population is turning out to be one of the biggest consumer product segment in the world, are considering investments in ventures here, to access these markets. To get a slice of this lucrative market they are on the prowl looking for ventures they can acquire or partner with, for an immediate entry into Indian label printing industry. It happens to be the quickest route as they take over or partner with existing successful label companies, already servicing large fmcg and multinational users.
International players have been in India for long. Johnson & Johnson are linked to history of label in India. They started to produce labels way back in 1978. Then there is CGPPI at Goa and Birla 3M in Bangalore but these were planned ventures set-up long years ago. The Joint Ventures, mergers and acquisitions in the current scenario all started when Kusum and Kartar Dunglay of Goodwork Company Delhi met Marc Reynders at a show in New Delhi. They eventually started their joint venture Reydunn at Manesar, Gurgaon in 2005. Unfortunately the partners later fell apart and both went their own ways. Reynders now run their wholly owned label unit at Chopanki in Rajasthan and Reydunn is a part of the Goodwork group operating from Naraina, New Delhi. In 2006 Brady Corporation headquartered in Milwaukee USA employing 6500people and sales of 1.34 Billion US dollars setup a wholly owned company Brady Company India Pvt. Ltd. in Bangalore to produce labels for safety, security, identification, die-cut profiles, and specialty products. A little later my friend Mikael Dahl of Nordvalls Sweden joined hands with Venu Ayyar of Laxmi Compugraphics to enter into a JV. Nodvalls is an over 100 year old company with a turnover of over 19 Million Euros and over 105 employees. This venture too did not take off. I quote Mikael in an email received on 12th October 2012, “Unfortunately we had to terminate the cooperation with Laxmi, press is for sale”. In the meanwhile Nordvalls has bought over one of their national competitors to grow further and become the No.1 label company in Sweden. Just a year later in 2007, Printcare Srilanka, a 27 Million Dollar Company started their unit Printcare India Pvt. Ltd. at Coimbatore. The unit as I understand is doing well. Until this time, given the track record and business model of such JV endeavors, the growing and enterprising label printers were not worried.
It was only on the 21st of March 2011, that a press release from CCL Label Worldwide ruffled many feathers and set the ball rolling towards the current trend of JV’s and acquisitions. CCL label headquartered in Canada, employing 5800 employees at 61 locations around the world, acquired 50% stake in Dubai based Label Co. Pacman. In the same press release a line read; “The partners have also agreed in principle to a prospective future Greenfield investment by Pacman- CCL in India.” If the world’s largest label company was planning to invest in India, it was time for Indians to take stock. They had to consider partnering with other international partners to face the challenges coming from such large entities. Though CCL has yet to announce their entry into India in label production, yet leading Indian label manufacturers have opened their doors by either selling out or partnering with larger players.
Early this year in February 2012 the industry was surprised by the news that Bangalore based Wintek Flexoprints had been acquired by Hyderabad based ITW Signode, ITW India Ltd. a subsidiary of multi-billion dollar fortune 200 global industrial products company ITW, with headquarters in Illinois USA.
A few weeks later one of the Europe’s largest label producing company Skanem with headquarters in Slavanger, Norway, acquired 51% stake in India’s largest label company, Mumbai based Interlabels with sales of over 19Million Euros and 220 employees. The new entity is renamed as Skanem Interlabels. This has definitely triggered a trend in the label industry. Just six months later, we have the news that Bangalore based SGRE labels, has been fully acquired by Mumbai based Positive Packaging Industries Ltd. the flagship company of Enpee Group, an international conglomerate with over 50 years of business experience. Positive Packaging is a pioneer in flexible packaging with state-of-the-art facilities located strategically in India, Nigeria and the U.A.E. They offer packaging solutions to customers in various countries through a robust international sales and service network, catering to diverse sectors including FMCG, Agro products and Pet food. The acquired business is now named as Positive Labels. This trend seems to be on the increase, more and more Indian printers are looking for partners. Some admit it others like to keep everything secret. However there are quite a handful of them who would like to have international partners to expand their businesses with global presence. Meanwhile constituents of the label industry are talking in hushed tones about another deal that has taken place but since the stake holders do not confirm publically, it remains gossip that goes on.
The industry is undergoing a fast transformation from being small, single owner, mostly first generation entrepreneur owned enterprises with one or two label presses to larger companies with diverse product offerings like labels, flexible packaging and cartons. These companies have made huge capital investments and are in the forefront of the label industry. The single owner family managed companies who have made rapid strides by investing in multiple label presses to expand and grow to meet the current demands of their end users include companies like Update Prints, Regal Creative, Syndicate labels, Anygraphics and Zircon in North India, Classic Images in East India, Webtech, Ajanta, Mudrika, Mahrishi, Letragraphics, Renault paper, Unique, etc. in western India and Seljegat in South India. Two of the others who expanded in South India have been already acquired. Larger professionally managed companies who have presence in offset printing, flexible packaging or carton manufacturing, who have invested in label printing include Uflex, PPL-Huhtamaki, Positive Packaging, Shree Rama Multitech, ITW, Pragati offset group, ITC, etc.
Definite segmentation has taken place in the Indian label printing industry. At the lowest end is the biggest labelstock consuming segment of the industry. These include companies who produce plain labels, barcode labels, gun labels, computer labels, EDP/VIP labels, etc. In the middle are the printers who cater to the unorganized sector and smaller manufacturers of consumer goods mainly in the MSME (Micro Small & Medium enterprises) sector. The top end that drives in the highest revenues caters to the larger companies, FMCG sector, multinationals, pharmaceutical companies, organized retail, etc. They are the ones producing the highly decorative and complicated labels on their state of art equipments. It is this top end of the label companies where all the JV’s or acquisitions are taking place. With FDI(Foreign Direct Investment) in multibrand retail permitted in India, growth rates in label consumption will rise.
With volumes expected to increase and come from the need of packaged goods that will be retailed to a young and large population, the sentiment in the industry will remain “Positive in labels”.
Written by Harveer Sahni, Managing Director, Weldon Celloplast Limited, New Delhi-110008 October, 2012