When Sussex-based Quad/Graphics Inc. took on the role of industry consolidator, the company’s Wisconsin plants often were on the receiving end of work the company consolidated from other facilities out of state.
The printing and marketing services company took another significant step towards industry consolidation on Wednesday, announcing a $1.4 billion all-stock deal to acquire Chicago-based LSC Communications. Wisconsin could be in line to benefit from the deal with more jobs, company executives said, as long as it can find enough employees.
Five of Quad’s largest plants are located in Wisconsin and so when the company looked to close other operations in recent years, it made sense to bring the work to the Badger State. Quad has added 1,700 jobs under a 2010 incentive contract with the state and is looking to add more.
While consolidation is not the only motivation for the acquisition of LSC, the combination of two companies with around 57 million square feet across 114 facilities presents an opportunity for an industry that is under pressure. The printing industry operated at 73.6 percent capacity in the third quarter of 2018, up from 65 percent in 2016 and 59 percent in 2009, but still below the long-term average of nearly 80 percent.
“We have to be able to rationalize the platform, but most importantly make sure we’ve got the right talent in the right places to really execute for our clients,” Joel Quadracci, Quad chairman, president and chief executive officer, said on a call with analysts Wednesday.
In an interview with BizTimes, he indicated the company would like to follow a similar pattern to its previous major acquisitions but added that Quad does have major plants around the country.
“Our intent is that you will see more job creation in Wisconsin,” he said, noting the company’s plants in the state can add capacity through investments in automation and other areas. “How you get people will be the limiting factor.”
The struggle to find and attract available workers is nothing new for Quad or any major manufacturer in the region. The company recently received a $264,000 grant from the Department of Workforce Development to expand its employee rideshare program to help potential workers from Milwaukee reach Quad plants in rural and suburban areas.
Even without the acquisition, Quad is expecting $25 million annualized in added costs from increasing starting wages in tight labor markets.
In Wisconsin, the increase has shifted the average starting wage from $13 to $16 per hour. Dave Honan, Quad’s chief financial officer, said the company had 500 job openings in the state when it implemented the increase earlier this year and now has 300.
“We still have a significant demand for labor,” he added.
Quadracci said the company also made it a point to increase its wages for temporary labor it uses to deal with seasonal increases in its business.
The LSC Communications deal is expected to close in mid-2019 and Quad’s executives believe they can capture $135 million in savings from the deal within 24 months of completing the transaction. That timeframe puts any consolidation that brings work to Wisconsin up against the ramp-up of hiring and construction work Foxconn Technology Group is planning.
Quadracci acknowledged Foxconn’s plans to hire 13,000 people, along with thousands more for construction, present a workforce challenge, but he added that the entire country is in a challenging position with low unemployment rates.
“It sort of puts a lot of pressure on both public and private sector to really walk the walk,” he said, adding he’s hopeful Foxconn will ultimately help draw people to the state.
In the short-term, he said businesses will need to emphasize the entire package of benefits they offer to attract employees. For Quad, the means highlighting its own health care services through QuadMed.
The LSC deal itself marks a landmark moment for Quad as the company acquires the business that was at the heart of R.R. Donnelley, long the top printer in the world and an aspirational target for Quadracci’s father Harry as he built the business.
“It was always like shooting for the top dog even though at times we were maybe number 300 on the list,” Quadracci said.
He said many of the people working in LSC plants have been there for a long time and Quad has a similar situation.
“These are manufacturing plants … and our culture is very manufacturing friendly,” Quadracci said, expressing confidence the two companies will be able to merge their cultures.
In announcing the deal, Quad made a point of emphasizing that the Quadracci family will retain 70 percent voting control over the company.
Quadracci said it is important to truly integrate LSC into Quad/Graphics, all the way down to the IT systems. He said printing companies tend to generate a lot of free cash flow and without the family control; Wall Street would likely be too impatient and want to put the cash to other uses instead of investing in the integration.
“It allows us to do the right thing for the long run,” he said.
