Page 24 - Print21 Magazine Jan-Feb 21

Analysis
Behind the Ovato deal
The successful deal to save what was the country’s biggest print business, Ovato, has more plots and sub-plots than a series-deciding five-day test match versus India. Wayne Robinson reports.
The Ovato rescue is a story
of business imperatives
and personal relationships, acquisitions, and losses, all set against a rapidly evolving
media landscape.
High-volume printer Ovato with its
focus on catalogues and magazines was already facing a nine per cent decline in revenue in the 2019-20 financial year as the media environment continued its evolution, and that was before Covid smashed through in March. That then resulted in a precipitous 41 per cent drop in revenue in the rest of the financial year.
Mercury bought Are just a few weeks after Bauer Australia bought its main rival Pacific Magazines, for $40m,
not much less than Mercury paid for Bauer, with Bauer spending months unsuccessfully trying to wriggle out
of the deal, which put 55 per cent of Australian and New Zealand magazines in the hands of the one new company
The upshot for print of the Mercury Bauer Are deal was that in New Zealand the Webstar presses now had work again, as the new owners rebooted
the Kiwi magazine business, while in Australia the two biggest publishers became one, but with the two major printers as suppliers. Bauer, now Are, magazines are printed at Ovato, while Pacific Magazines, now also Are, are printed by IVE.
With a loss of $109m, on sales down
by $130m to $593m, major shareholders
the Hannans had to act. Ovato’s major markets, already under pressure, were suddenly looking shaky – its biggest customer Bauer stopped printing in New Zealand, and although Ovato rival Webstar had the contract, the closure sent alarm bells ringing over here, as Ovato had the Bauer Australia contract.
The noise from those alarms reached a crescendo when supermarket colossus Coles said it was stopping the 10,000-tonnes-a- year Australia letterbox catalogue. Again, it was printed by an Ovato rival, in this case IVE, but with Ovato having the equally large Woolworths catalogue, nerves, already on edge, were now jangling.
The end of the lease on the Victoria print site at Clayton gave Ovato a choice: either set up a new greenfield site in Melbourne, or close Victoria, print at the Warwick Farm supersite – where there was no shortage
of excess capacity – and truck the product down to Melbourne every night. The choice was a no-brainer, even though it would cost a quarter of the workforce their jobs.
Lorraine Cassin and the AMWU cried foul. They had already swallowed plenty of pride in enabling redundancy agreements to be renegotiated, but in reality, there was little option for the union; they were told it was either those 300 or the whole 1200. The companies employing the 300 staff were liquidated, controversially leaving the taxpayer to pick up the $17m worth of entitlements.
Ovato execs led by chairman Michael Hannan and CEO Kevin Slaven presented a 625-page scheme to creditors, a scheme that meant those that had unsecured invoices would have to take 50c in the dollar. They all voted to support the scheme.
24 Print21 JANUARY/FEBRUARY 2021
Scheme approved by creditors: Michael Hannan (left), and Kevin Slaven at the Warwick Farm supersite, which will now print for VIC as well as NSW
A major plank in the scheme is the $40m cash injection, at least $35m of which was underwritten by the Hannans, and major customer, magazine publisher Are Media. The two parties have saved Ovato.
When IPMG and PMP merged almost
four years ago, the Hannan family became the largest single shareholder with 36 per cent of the company, a stake they have since increased. At the time of the merger the share price was around 27c, since then it has lost 99 per cent of its value. Fortunately, the Hannans are not just smart printers, and have most of their wealth outside print.
Are Media is the country’s biggest magazine publisher and Ovato’s biggest customer – it is Kerry Packer’s former publishing company. It is now owned by private equity fund Mercury Capital, the same fund that also owns Ovato’s main rival in New Zealand, Webstar, with its minority partner Tom Sturgess, who has a long history with Geoff Selig, the head of Ovato’s main rival in Australia, IVE.
Sturgess and Selig bought the Kiwi and Aussie parts respectively of what was the consolidated print empire Blue Star from private equity fund Champ when it was staring down the cliff eight years ago.
In June, while Ovato was seeing its sales plummet by 41 per cent, Mercury was buying what is now Are Media from German-owned Bauer Media. Mercury paid just a tenth of the $525m price Bauer paid James Packer’s ACP for it in 2012, the price difference a stark illustration of just how much the landscape has changed.
Now the magazines are all owned by the same company, the stakes for Ovato and IVE shot up. Would Are Media
place all its eggs in one basket, and if so which basket, or would it keep both?
Mercury bought Are to resurrect the New Zealand business, and fill the gaping hole on Webstar’s production board caused by Bauer closing its New Zealand business. Buying the business meant it also now owns 55 per cent of Australia’s magazines.
Since the deal went through, printing has continued as it was in Australia with both Ovato and IVE presses rolling for Are. Now Are Media is underwriting the deal to save Ovato. Why would that be? Well, Are has a contract with Ovato, and clearly values the service, and its top quality print on modern presses, but a key reason may be found in three words: Ovato Retail Distribution, the business formerly known as Gordon & Gotch.
Are Media, which publishes the majority of biggest selling consumer magazines, needs the distribution the Ovato subsidiary provides. It also needs the cash pipeline – newsagents pay Ovato Retail Distribution for their magazines, not Are Media – it receives its payments later, from Ovato.
The deal is now going through, Ovato
has been saved. Are Media will remain a major customer, and Australia will retain two major heatset print businesses. Ovato
is projecting an EBITDA of $41m–$45m for the current financial year. Almost every printer in the country has a view on the pros and cons of the deal, that view coloured by their relationship with Ovato, as client or competitor. One thing we hope is that this journey has a long way to go, for all of us. 21