The demise of GEON (or a eye-opener on private equity)

The largest offset sheet-fed printer in the Australasian region, Geon, has gone. Geon was an ambitious project to reshape the printing industry, but after six years (one correspondent says eight years), under private equity management, Geon has finally collapsed.

When the company started operating, it bought up a considerable number of successful and respected printing companies throughout Australia and New Zealand including BlueStar, Penfold Buscombe, Impact Printing, Advance Press, Kiwi Labels, CaxtonWeb, and Webstar.

The demise of the company is detailed in a news article in the article as follows.

The company’s private equity backers, Gresham, finally walked away at the beginning of February when it handed control of the company over to KKR/Allegro private equity investors which had earlier acquired $80 million of Geon debt from Lloyds International. At first there was talk of restructuring and turning the business around but after less than a fortnight, the new owners had called in the receivers. Almost immediately, the dismantling of the Geon group began in earnest.

First to go was the Christchurch-based Kiwi Labels business, which went to Blue Star NZ, itself recently returned from private equity ownership into the arms of former owner, Tom Sturgess. Then Geon’s NSW and Victorian operations went to Blue Star Australia under Geoff Selig who acquired the former Geon Banksmeadow and Parramatta sites in NSW, as well as its Mt. Waverley site in Victoria. These sites were immediately earmarked for closure with a “meaningful number” of Geon employees being offered positions at Blue Star.

Tom Sturgess came back for more 10 days later when Blue Star Group NZ picked up the remaining Geon assets in New Zealand with 50 former Geon workers being offered positions at Blue Star; another 185 former staff missed out.

By mid-March, Geon Perth was looking to go it alone by means of a management buy-out and then, a few days later, Geon’s Tasmanian assets reverted to their former identity, Mercury Walch, under the ownership of the Todisco family. That just left the Queensland operations which failed to find a buyer and were closed down, the Eagle Farm site quickly being listed for sale or lease.

And that was that. Before you knew it, the waters had closed over Geon’s head and the region’s largest sheetfed printer was no more. All that remains is for those staff and suppliers left behind as the ship went down to see what they can salvage from the wreckage.

The industry has seen some hard times in recent years – great companies gone, some of whom it was almost unfathomable to believe could go out of business – but perhaps nothing matches the trauma of the past couple of months.

For me, however, the real learning curve has related to the business model of private equity businesses. The article referred to above provides a host of details which are very enlightening indeed about private equity. Here’s a small sample.

The collapse of Geon is not an indictment of the ‘failure’ of private equity because the business model it holds to is not the same as everybody else’s. Private equity plays by a different set of rules.

There’s an episode of the TV series The Sopranos in which Tony Soprano and the gang take over a sporting goods store after the owner gets into debt with them. Not surprisingly, Tony has no intention of becoming a shopkeeper. Over the coming days and weeks, he and his cronies systematically strip the store like locusts, running up huge debts and selling off the stock at less than cost price (sound familiar?) until eventually the credit dries up.

At one point, the exasperated store owner asks Tony what he’s doing, why he is deliberately running down a good business. “This is how a guy like me makes his living,” says Tony, referring to the old fable of the frog and the scorpion. “This is my bread and butter.”

Finally, with the business on the point of collapse, the owner, drunk, desperate and suicidal, asks Tony Soprano how it will to end. “The end?” replies Tony. “It’s planned bankruptcy.”

During the last US presidential election campaign, the Huffington Post made the same analogy between the modus operandi of private equity groups and Tony Soprano in reference to Republican candidate Mitt Romney’s history with private equity mob, Bain Capital. In the US, Bain has a reputation for buying up companies, loading them up with debt to extract higher dividends and then allowing them to go bankrupt. Romney’s attitude was exemplified by his opposition to any government bail-out of the US auto industry, commenting that “these companies need to go through a managed bankruptcy” as if going bankrupt is simply another form of re-branding.

The point is that, for private equity investors, bankruptcy is not necessarily indicative of business failure; it is a strategy for getting rid of debt and cutting costs. At least Tony Soprano was capable of empathising with his victims.

There is a whole host more detail in the article and I highly recommend it. Here once more is the link.

And here is another link to a story in ProPrint where a Geon insider speaks of the last days of the company with particular reference to his views on the company’s management.