Donnelley Acquires Genesis - Analyst Blog
10 September 2011 - 3:46AM
Zacks
Printing major R.R. Donnelley & Sons
Company (RRD) recently announced that it has acquired
Lemont, Illinois-based privately held Genesis Packaging &
Design Inc, for an undisclosed amount.
Genesis provides custom packaging, including designing,
printing, die cutting, finishing and assembling services. Genesis
also offers a broad spectrum of value added services, including
design and production of point-of-purchase displays and
signage.
Genesis boasts a clientele catering to sectors such as packaged
food and beverage producers, pharmaceutical companies, consumer
electronics manufacturers, retailers, consumer packaged goods
producers and educational publishers.
Donnelley believes that the addition of Genesis’s technology to
its group of solutions will expand its capability to serve its
customers. We believe that the acquisition will also enable
Donnelley to expand into new verticals and help it gain significant
market share going forward.
Donnelley’s growth has been primarily driven by significant
acquisitions over the last few years. In August 2011, Donnelley
acquired LibreDigital, a digital content distribution provider, for
an undisclosed amount. Further, the company also acquired New
York-based privately held software company Sequence Personal, for
an undisclosed amount.
From March 2008 to June 2011, the company acquired 6 companies,
including 3 in 2010 and 2 in 2009. In the first half of 2011,
Donnelley acquired 2 companies: Helium, Inc. and Journalism Online,
LLC.
Although the company acquired 3 companies in 2010, the most
significant was Bowne & Co, a provider of digital one-to-one
printing services for health care, transactional communications,
financial services, marketing communications and other
applications. The Bowne acquisition proved accretive to Donnelley
in the very first year. Bowne contributed 0.6% ($61.2 million) to
the total revenue growth of $161.5 million in fiscal 2010.
We believe Donnelley is focusing on acquisitions to expand and
enhance its offerings to its current customers, as well as to woo
new ones. The company’s continued focus on acquisitions will also
spur its already dominant market position and drive long-term
growth, in our view.
Recommendation
We remain Neutral on a long term basis (3-6 months). Donnelley
is witnessing stabilization in demand, increase in volumes and new
customer wins. We believe that strong alliances and customer wins
including those of AT&T Inc. (T) and
Verizon Communications Inc. (VZ) will create value
for the company over the long term.
However, we prefer to remain on the sidelines due to weak macro
economic conditions prevailing in most of Donnelley’s current and
prospective markets. Moreover, higher pension expenses, continuing
pricing pressure, volatility in raw material prices and a highly
leveraged balance sheet are significant headwinds going
forward.
Currently, R.R. Donnelley has a Zacks #4 Rank, which implies a
Sell rating on a short-term basis (1-3 months).
DONNELLEY (RR) (RRD): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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