“Manroland is in it for the long term," says Tony Langley

A month ago, the future of Manoland’s sheetfed arm looked more than a little uncertain. While a buyer for the web division was all but signed, sealed and delivered, the only hope for the sheetfed arm appeared to be an MBO that not only required financial guarantees from the German state of Hessen, but, even more critically, someone to actually back it. With the best will in the world, the chances of Manroland still being a major player in the sheetfed press market looked to be fading fast.But fast forward two weeks and, seemingly from nowhere, a cash-rich buyer, new to the print industry steps in at the eleventh hour. What’s more, he’s British, solely owns a €500m engineering group and, aside from the fact that he’s more of fan of racing yachts than trade shows, that’s pretty much all we knew about him. In his first interview with a print industry title, we ask the man behind Langley Holdings, chairman and chief executive Tony Langley, about his plans for his latest acquisition.

What appealed to you about Manroland’s sheetfed arm?
Manroland meets a very high number of our acquisition criteria. Basically we assess potential opportunities against a number of specific criteria, we’re actually quite stringent on those, so we look at a lot (of companies) and move on very few. This was an eight out of eight.

Was it just the sheetfed arm that you were interested in then?
We felt that the company as a whole was too big – our criteria is £1m to £500m revenue. In fact, the web business also met the criteria, but obviously there was a deal on the table already (with Possehl) and we were quite happy to pass on that.

Had you been looking at Manroland for a some time then?
Yes. In fact we’ve had Manroland on a watch list for quite a while; we were half expecting the insolvency after the Swiss deal (with venture capital firm Capvis) fell apart and then we were expecting it to be swarmed around by the Chinese and others, which it was. So we let that run its course and then stepped in at, well, the appropriate time shall we say.

Up to the eleventh hour it appeared that an MBO deal was set to buy the sheetfed arm, but presumably this is an out and out purchase and you’re not simply supporting an MBO?
It’s an out and out purchase. One of the discussions I had with the management before we proceeded was ‘how do you guys feel about this?’, because I was aware that there was an MBO in the offing. But I think they really saw that as a last resort and a strong industrial parent was much the preferred option.

But looking at your past acquisitions, you appear to largely leave the existing management in place to run your companies; will that be the case with Manroland? 
Very much so. But we will be putting some Langley management in too, if you like, for the transition from the type of company it was to the company it will be.

The question that everyone is asking though is: how do you regard the acquisition? Is it a long-term investment or a restructure or turnaround opportunity with a view to a future sale?
We’re not PE, well I suppose we are really in some respects. But we don’t look for opportunities to tidy up and move on as quickly as possible. We very much focus on a buy, improve and hold strategy. Put it this way, we’ve never sold anything yet. In fact, with our first German acquisition, we’ve just celebrated 10 years and it’s been seven years with the other one.

In terms of your other deals, is the Manroland purchase your largest to date?
In absolute terms it is, in percentage terms it’s not. The group is quite a bit bigger now.

How much did you pay for the sheetfed arm?All three parties agreed not to disclose that.Fair enough. You mentioned earlier that each of your acquisitions has to fulfil a set number of criteria, can you expand on those?
We look for opportunities in capital equipment manufacture, businesses that are underperforming. The other criteria is that it has to be in north west Europe, because we tend to spend a lot of time in our divisions, particularly in the early days. We also look for one or two principle locations. In this instance, the principle location is Offenbach with subsidiaries in 40 countries, but these are what we would call outposts – sales and service organisations. The core of the business needs to be within our two-hour radial. It also needs to be 100% available, we don’t do any partial acquisitions and it needs to be a committed disposal decision – we don’t waste our time with maybes. Lastly, it needs to be a non-core disposal from a major parent or, like this, a special situation.

How does Manroland fit within the group? Did you also see it as a synergy buy? Manroland has a lot of manufacturing firepower, presumably you could produce parts for your other companies and vice versa.
It’s not a criterion. It is something that we look into in the second stage, post acquisition. But no, this is not a synergy buy. We look at any common purchasing opportunities and that sort of thing, but at the second stage. One of the criteria is that the target has a strong market position, but what field that is in, we don’t specify. Capital equipment is what we’re about; we’re a conglomerate, but not in its widest sense. We’re a conglomerate of capital equipment. If you look at the profile of the existing businesses that we have, they are all capital equipment businesses. Whether it’s producing equipment for the cement industry, welding equipment for the automotive industry, UPS (uninterruptable power supply) for the data sector or packaging machinery, 99% of everything that is in our group is capital equipment. That’s what we feel we understand and the old saying ‘stick to what you know’ is probably why we don’t conduct more acquisitions than we have done. We look at a lot of things, but unless we get at least six out of eight of our criteria, we don’t show any more interest.  Equally, we’re not looking for any major acquisition opportunity in the fields that we’re already engaged in.

So in essence, every acquisition has to stand by its own merits, rather than the possible synergies within the group.
Yes. There may be synergies, there may not. There’s a foundry for example. But it’s not something that we looked into for this business, it may be something than in a year or so from now there will be some inter divisional business, but it will probably be very small and will make sense, but it’s not the sort of thing that we base an acquisition of this scale on.

So what do you see as the key opportunities for Manroland Sheetfed then? After all, the heavy-metal side of the industry is tough place to be, certainly in terms of sales.
Well, I think the prospects from the point that we’ve come into the industry are actually quite good. We’ve seen the market for new machinery collapse by probably two-thirds in recent years, but there is a strong service base there for the many thousands of machines already in the field, I’m speaking generally now, so the aftermarket is strong.

But if the business is to thrive, surely it has got to start selling more machines?
The administration has given the opportunity for the business to be restructured in very short time and I’m really impressed with the pragmatism of the administrator, but also the management, the workforce and the unions about getting this business right-sized, because that made it attractive to an investor. [For example], the cash commitment  required  to right-size the business was presumably too big a pill to swallow for the VC deal that fell apart before the administration. A lot has been done in two months and the business that we’ve acquired is right-sized for the current market, which I think is pretty well at the bottom.

So you believe things are set to improve?
Looking at it, we’ve been in the credit crunch for quite a long time now and the balance of probability is that credit is going to get more relaxed (rather) than tighter. I appreciate that most of the (Manroland) kit is bought on credit, but even if credit remains tight for a period, that doesn’t concern us overly, because we are structured for a much, much lower level of activity than the business was doing years ago. I mean, it used to be around a €1bn turnover, our model is based on around €350m going forward this year. We would expect it to grow. Equally, it’s not all bad news in the print sector; packaging is a growth area and Manroland is particularly strong in packaging and we’ve got a benchmark product in terms of technology for that sector. So, I don’t see a decline, I actually see quite a potential for growth in that business segment. It’s very easy to mix it up, with where it’s come from to where it’s going, but the where it’s come from was not on our watch.

So would it be a fair summary to say that you’re going to build a business that is sustainable on service and spares, but poised for when the market does turnaround in terms of sales?
Not at all. We’re still expecting significant capital orders, we’re not maintaining this business as just a service organisation – it’s much more than that. We’ve acquired all of the manufacturing facilities, with all of the operating premises and based on our current projections we will be at about one-third of that capacity. But we have still maintained all of that capacity and there’s going to be no further downsizing of that capacity, we’re keeping it available in terms of real estate and plant machinery and everything else for an anticipated growth from here. I don’t think it will go back to a €1bn turnover, but I do think it will grow from our very conservative model from year one. And we will be in a position to meet that increase in demand as and when it occurs.

In terms of the press formats that Manroland offers though, are you looking to rationalise the range and the markets it operates in?
That’s very much a local management discussion. We tend not to get too involved in making decisions about products and markets because, well, we don’t know the print industry market well enough; we understand the capital equipment model. We will certainly be having that discussion with the management, but operationally the existing management is very much in ‘business as usual’ mode.

I’m guessing that might be the same answer for my next question. The ‘old company’ had a partnership with Océ, is that something you’re keen to maintain for the sheetfed side?
Again, that’s a discussion we will have with the management. I am conscious that the bottom end of the market is being nibbled away at by digital and the arrangement with Océ was prudent, but I think (digital) is a long way off in terms of comparably high-volume, high-quality print production.

So the Océ deal is continuing, but under review?
Yes, it’s a management discussion we’ll have in due course, but it’s not a high priority for us as the investor behind the business. I’m obviously  interested what they’re doing and in the coming months I’ll know a lot more about the print industry than I knew yesterday, but that’s a discussion we’ll be having. As an investor, we specialise in capital equipment technologies and we’re an active investor and understand engineering and in particular capital engineering. But the Manroland business is really not so different to other Langley operations.

I assume one of the major differences though is that as part of the deal, you’ve bought international sales operations across more than 40 countries. Is that something that was attractive for other parts of the Langley group?
It’s very much a second-phase task, but we’ll look and if we have second operations, for example if have something that we’re leasing in the same town and we have surplus capacity in a freehold that we now own, then we will be looking at the sharing of facilities. But it’s not something that we’ve assessed and it’s not something that is a priority. The Manroland marketing organisation is very substantial and it’s absolutely essential that we have this international sales and aftermarket structure.

Okay, but a lot of these operations were presumably selling and servicing both web and sheetfed. How will that work going forward?
There’s an understanding between us and Possehl.

Will that continue?
I would expect, well, the marketing organisation that we have acquired, which is the vast majority of it, is predominantly sheetfed. There were two exceptions and these were Australia and India, which were predominantly web-fed. These subsidiaries have ended up with Possehl and we will have some sort of marketing, agency, and back office arrangement and the expectation is that Possehl will have the same arrangement with some of our subsidiaries. 

In terms of Printcom (the Manroland consumables arm) though, I understand a number of consumables manufacturers have sought other agency arrangements – is that something that you’re looking to build up again?
Yes, we see Printcom as a core activity, it’s part of the total package – it’s not just about supplying machines, it’s about maintaining them at their absolute optimum performance 24-7. Printcom and everything else is all part of that aftermarket offering.

As a lot of people have already highlighted, back in 2001 in an interview with Cranes Today, you said that you don’t exhibit at trade shows as you think they’re a complete waste of time and money.  Will you be going to Drupa?
Ten years is a long time and the group has come on a lot since then. My thinking then was that we weren’t in fragmented markets, but Manroland operates in a much bigger, much more fragmented market, as are a lot of other operations. So I have changed my view on trade shows. They are...

...a necessary evil?
No, I wouldn’t say that. They are a valuable part of the offering to the market. But I do think a lot of money is wasted at trade fairs, and we certainly won’t be wasting any.

But you will be at Drupa.
Oh, we’ll be at Drupa. We’ve agreed with Possehl that we’ll take a combined stand, but it won’t be quite as big as it was going to be though.

Will you be taking kit though, as Manroland didn’t take equipment to Ipex, for example?
As it happens we have touched on that, but it is very much a management operational issue. We’ll be there and I’ll be very surprised if we don’t have a machine there.

And what about the chances of you having any other additions to the empire on show in Düsseldorf in May?
We’ve been watching the print industry for a while, but there are no plans to do anything else in the sector now. We’ve got quite enough to be going on with.

So a deal for Kodak is unlikely?
Kodak is not a likely deal, no. I think we can discount that.

FACTFILE FOR LANGLEY HOLDINGS
Headquarters Retford, Nottinghamshire
Employees worldwide 2,225
2011 revenue €495m (2010: €400m)
2011 pre-tax profit €76m (€66m)
2011 net cash €246m (€187m)

Divisions 
Piller Division
Location Germany
Acquired 2004
2011 revenue €190m
Activities Manufacturer of uniteruptable power systems, airport ground power systems and naval military electrical systems

Claudius Peters Division
Location Germany
Acquired 2001
2011 revenue €135m
Activities Materials handling and process systems for cement and gypsum industries, coal pulverising and injection systems for the steel industry and aerospace components

ARO Division
Location France
Acquired 2006
2011 revenue €109m
Activities Automotive resistance welding systems Other businesses Locations UK and US 2011 combined revenue €60m Businesses include Clarke Chapman, Bradman Lake Group, JND Technologies, Protran