P-O-P Merger-Mania

Consolidation? Shakeout? Business as usual? That's what some marketers are wondering in view of the rash of P-O-P company mergers and reorganizations. The list of recent activity is becoming extensive:In September, Union Camp Corp., a Wayne, N.J.-based manufacturer of paper and packaging products, acquired Phoenix Display & Packaging Corp., West Deptford, N.J.That same month Pentzer Corp., Spokane, Wash., reorganized 10 of its affiliated companies into The Creative Solutions Group. The group includes P-O-P companies Conocraft, Sussex, N.J.; White Plus, Los Angeles; Graphic Communications, Athens, N.Y.; Target Woodworks, Miami; The Decker Co., Memphis, Tenn.; and Advanced Manufacturing & Development, Willits, Calif.In 1996, Chesapeake Corp., Richmond, Va., acquired the display division of Dyment Ltd., Triad Packaging Co. and Chesapeake Europe S.A. in France. In July, it announced a reorganization in which its Chesapeake Display & Packaging Co. name would serve as an umbrella title for that company, its Color-Box Inc. graphic packaging company and the French division.In late 1995, Tenneco Packaging, Evanston, Ill., acquired the United Group, a Southgate, Calif.-based P-O-P company, and Deline Box & Display Inc., a Windsor, Colo., litho-laminated container manufacturer with additional facilities in Canada.Norcross, Ga.-based Rock-Tenn Inc., acquired Alliance Display & Packaging Co., Winston-Salem, N.C., a P-O-P maker, in early 1995.Fueling these changes, say those involved, is a recognition of two trends impacting the market: the reduction of domestic organizations and the expansion of global ones. With the rapid growth of the P-O-P industry, there's a desire to position companies to take advantage of opportunities as they develop.On the domestic side, many consumer-goods companies continue to cut their middle-management staffs, resulting in less in-house supervision for each function needed to take P-O-P materials into the market."As customers consolidate suppliers, they're looking for suppliers who can provide a full spectrum of package and graphics options," says Matt Heleva, group general manager at Union Camp. "That's the driver for our expansion strategy. More and more, clients are appreciating the value of a one-stop shop, and that's going to continue."Adds Mitchell Edelman, ceo at Phoenix, "Companies have fewer brand-side managers available to perform these functions internally. As a result, they want each supplier to bring more service to the table."That view also drove Conocraft to join Pentzer, according to Nicholas Romano, ceo of Conocraft. "This company's vision was horizontal integration rather than vertical," he explains. "We continue to assemble the pieces of the pie so that someone can come to us and say, 'I want a display and I don't want to have to worry about any of the things in between -- I want you and only you to handle it.'"The one-stop shop offers financial assurances, as well, says Jan Plester, vice president at Pentzer. "Not only do companies want to know that we have the ability to perform a variety of functions, but they like that we have the financial support and strength to deal with their requests in any quantity and scale they need. We offer that financial strength as a group."Global Interest CrowsAt the same time, more consumer product manufacturers are taking a multinational approach to their marketing efforts. To make that work efficiently, they are looking for P-O-P vendors who can lift promotional strategies out of the domestic arena and carry them around the world. That eliminates the need to work with local companies in each country, generating efficiencies in time, money and message continuity."Everyone has been talking about international expansion for a number of years," says Edelman. "But there's been a real acceleration of interest in the global market in the last two years." Much of that comes from the speed with which international communication and commerce can be performed today, led by the use of the Internet, he notes. "We are definitely moving into that heavily because our clients demand it and the opportunity is presenting itself."That also drove Chesapeake's expansion into Canadian and French operations, says Andrew J. Kohut, president of Chesapeake Corp.'s display and packaging division and a corporate group vice president. "Our strategy is to develop a global company capable of providing seamless service around the world. That's where our customers are growing, and that's where we see our obligation if we're to grow with our customers." He notes that Chesapeake's long-term strategy will include further expansion, including Asia.Other companies are growing internationally, too. RTC Industries Inc., Rolling Meadows, Ill., and Thomson-Leeds Company Inc., New York, are two that recently added new international branches. RTC's office in Poland, opened in the fall, brings its international branches to 11, while Thomson-Leeds' joint venture in Bombay, India, begun in April, is its fourth overseas partnership.Global expansion offers two opportunities, says Andrew Edelman, president of Phoenix. "Servicing our existing clients is the reason we are making the move to a global basis initially," he says. "But it's our hope that we'll be able to grow and create some prospecting opportunities with domestic clients in those markets as well."More Benefits AccrueSmaller companies also derive benefits by coming together under a larger umbrella name, say those involved in recent acquisitions. A key advantage comes from the deep pockets offered by a larger company. This allows the smaller vendor to take advantage of growth opportunities in an expanding industry. It can also provide more generous benefits that keeps the small company competitive in retaining key personnel."Rock-Tenn offered a larger capital base we could draw on, and that's what has happened [in the 2-1/2 years since the purchase]," says James L. Einstein, president of Alliance. That also drove Chesapeake's purchase of Dyment, notes Kohut. "We've had a very rapidly growing company since the early 1990s, and we were out of capacity to expand our manufacturing capability," he explains. "Dyment gives us expanded, modern U.S. facilities in addition to an entry to the Canadian market, which we hadn't penetrated."Large corporations can also provide additional prospect lists, especially when the P-O-P company complements the existing businesses and works as an extension of those services. "Our key benefit," says Einstein, "comes in our access to the larger customer base provided by Rock-Tenn, the second-largest folding-carton manufacturer in the country. Many of its existing customers require point-of-sale displays, and that gives us access to customers we didn't do business with before."New customers and services also benefit the parent company, notes Union Camp's Heleva. "We've been building a graphics capability since 1990 with a number of acquisitions," he explains. "The one piece we'd lacked was a national presence in the P-O-P industry. We'd been a regional player [in California and Texas], and what Phoenix brings to us is the ability to service customers on a wider scale and with a wider variety of services that help us grow nationally."That synergy makes the whole greater than the sum of the parts, executives say. "It gives each company more confidence in taking on any project, because it knows it can draw on the other aspects it may need but doesn't have," explains Pentzer's Plester.Tenneco also saw that potential in acquiring United and Deline, says Paul T. Stecko, Tenneco president and ceo. "Our goal is to be an industry leader in the growing high-end graphics packaging market," he says. "We continue to focus on customer needs for packaging that bridges the gap between the traditional fine printing of folding cartons and the rugged durability of corrugated containers. These acquisitions are another step in that direction."Chesapeake, too, saw these advantages, says Kohut. "Combining these businesses allows us to streamline our organization and capitalize on the strengths of neighboring businesses. We have a responsibility to our customers, stockholders and employees to continually challenge our operating methodologies and look for ways to improve."Mergers and acquisitions can create drawbacks too, executives admit. Both buyer and seller must be certain that they're heading in the same direction and that they won't end up feeling restrained. "We were afraid of dealing with most integrated companies," says Phoenix's Andrew Edelman. "They often have a truly paper-oriented mentality and don't understand the nuances of some of the other businesses where they want to expand. We knew that wasn't the case with Union Camp."In fact, Phoenix's differences over direction with its existing parent, a large, diversified corporation, led to its acquisition by Union Camp. The other Phoenix corporate directors wanted to expand deeper into the packaging and box business, Mitchell Edelman says. "That wasn't really in concert with the direction we wanted to go. We wanted to grow with a display orientation and by offering other creative merchandising services."Responsiveness to customer needs and flexibility can also decline if the parent company operates too centrally, executives say. "Choosing your partner is a critical element," says Alliance's Einstein. "If you're bought by someone who is highly centralized, that can affect how well you can work with a customer who needs fast response."Communication among divisions at every level is paramount, says Pentzer's Plester. "We've realized there needs to be someone to coordinate the collaborative efforts that arise and to take advantage of our potential volume purchasing power, which are keys to our strength as a creative group," she says. To that end, the company has launched a search for a creative-solutions director to coordinate the companies.Chesapeake is focusing on communicating smoothly among its divisions as well. "The challenges of getting the businesses to work together are still there, and we're still in the early stages of finding what works best," says Kohut. "We're spending a great deal of time and resources on incorporating the companies so they work together."Small Still WorksThis growing approach doesn't necessarily mean the P-O-P world will soon be turned over to the display Goliaths. "I would have to say two trends will continue," says Union Camp's Heleva. "First, consolidation will continue, offering opportunities for larger companies to begin handling more service-oriented aspects. But I also see potential for suppliers to create niche opportunities through specific services."Kohut agrees. "The U.S. market is still the largest consumer market in the world. There are many industry segments where there is opportunity and potential for growth, and there will always be a need for focused companies with a core group of clients. Conversely, we think there will be a need for someone who can provide a larger array of services for a different group of customers."To some extent, it may force fundamental decisions about which customers a supplier wants to serve. "In the long run, some of the smaller guys may get hurt unless they can provide those larger opportunities for companies or find other niches to fill," says Mitchell Edelman. "Being able to supply a wide array of services will separate the strong companies from those handling a few accounts."But no one can be all things to all customers, says Conocraft's Romano. "It's just not a believable concept [to be a "one-stop shop"]. We won't position ourselves as a cure-all."At the same time, the trend toward reorganizing and acquiring to expand services won't be subsiding soon, either. Officials at Union Camp, Chesapeake, Pentzer and Tenneco all expressed determination to continue to grow through acquisitions when the timing and company profile were right. "We certainly think this is a great industry to be in," says Susan Greenbaum, Chesapeake Corp.'s assistant vice president of communications. "We want to continue to grow and use our core competencies to put our resources to the very best use."

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