Marc Reisch Discusses the Jostens, Von Hoffmann and Arcade Marketing Deal

By Cary Sherburne, Senior WTT Editor

August 23, 2004 -- On July 21, 2004, Kohlberg Kravis Roberts & Co. (KKR) and DLJ Merchant Banking Partners, an affiliate of Credit Suisse First Boston's Alternative Capital Division (DLJMBP), announced a series of transactions with an aggregate value of approximately $2.2 billion that will create a unique specialty printing and marketing services enterprise under the leadership of industry veteran Marc L. Reisch. The transactions encompass the recapitalization of Jostens and the acquisitions of Von Hoffmann and Arcade Marketing. All three companies are leaders in their respective markets and currently owned by DLJMBP.

The newly created company will consist of three leaders in specialty printing and marketing services:

• Jostens, Inc., the market leader in yearbooks, class rings, and graduation products;

• Von Hoffmann Corporation, leading printer of educational textbooks and supplemental materials and its subsidiary Lehigh Press, which specializes in book components and direct marketing print services through Lehigh Direct; and

• Arcade Marketing, the leading printer and manufacturer of sampling products for the fragrance, cosmetics, consumer products, and food and beverage industries.

On a combined basis these businesses generated sales in excess of $1.4 billion in the last twelve months ended March 31, 2004.

The transactions are expected to close this Fall and are subject to customary closing conditions.

Mr. Reisch took the time to speak with WhatTheyThink about the transaction and his vision of the future.

WTT: Mr. Reisch, congratulations on your latest venture, and thanks for taking the time to speak with us today.

MLR: My pleasure.

WTT: In March, following the finalization of R.R. Donnelley’s acquisition of Moore Wallace, we speculated that it was likely you would join the new organization. Obviously our speculation was incorrect. Can you share with us what you have been up to since Quebecor World?

MLR: I became a senior advisor to KKR in the fall of 2002. In this role I served as a Board member of one of KKR’s portfolio companies, acted as an advisor to KKR portfolio companies, and helped evaluate new investment opportunities. Shortly thereafter, in November 2002, I became Chairman of the Yellow Pages Group, which KKR had just acquired. I helped build the new management team and worked with management in their transition out of Bell Canada, of which Yellow Pages had been a part. Being involved with the largest LBO ever in Canada was a terrific experience, and the success of the deal in both operational and financial terms was very gratifying. I’m still Chairman. I am also on the Board of Jostens, which I joined last October, and I am also on the Board of Find SVP – a leading knowledge services company.

And most importantly, over the past few years I have had the unique opportunity to spend a lot of time with my three children, who are now 4, 5 and 7.

WTT: What spurred the combination of these three particular companies?

MLR: KKR and I together evaluated the print space and determined that these three companies owned by DLJMB would be a tremendous platform to build upon and offered one of the best opportunities to create value in the print industry. All three businesses are market leaders in their product offerings. The combination creates a very unique business with over $1 billion in print revenues and cash flow margins over 20% - almost double the average of the larger printers.

The strong demographics in primary and secondary school enrollments coupled with the anticipated strong demand in educational print spending due to the textbook adoption cycle and the No Child Left Behind initiative make this the perfect time to invest in Von Hoffmann and Jostens. Arcade is a wonderful business – the clear leader in the manufacture of multi-sensory interactive advertising and sampling systems for the fragrance and cosmetic industries. We are very excited to build on the strengths within Arcade ’s core market and to continue to build upon its momentum with leading consumer goods companies.

These companies are each terrific businesses and the increased scale we will have through the combination will enable us to improve our overall cost structure and asset utilization and have a business with a very well diversified mix of revenues and capabilities.

WTT: Jostens is obviously a very well-known name. Beyond the company’s business today, do you see opportunities to expand into new markets leveraging its core competencies?

MLR: I am very excited about Jostens. It is the market leader in yearbooks, class rings and graduation products. Even more importantly, it is a very innovative organization, continuously introducing new products into the market. We are in the midst of launching Jostens’ “ Yearbook Avenue,” which is a Web-based solution for the production of yearbooks. We’re confident this initiative will further differentiate Jostens in the marketplace and allow us to further enhance our market leading position. Given Jostens’ outstanding and comprehensive school relationships, we will certainly look to expand our product and service offering in this market.

WTT: Do you see an opportunity to expand further into the book market through Von Hoffman, beyond educational and trade publications?

MLR: Von Hoffman is very committed to the educational market, with the only comprehensive, full-service offering dedicated to this customer base in the industry. Von Hoffman has expanded its product offering to include a full array of design and premedia services specifically built for the education market as well as testing, supplementals, plastic transparencies, covers and other components. And, of course, hardcover textbooks. Obviously this is a highly seasonal business. Von Hoffman has world class manufacturing capabilities, especially in binding and finishing, and we will look to better leverage those capabilities. We will be highly selective in the markets we pursue and will concentrate on products and customers that can really benefit from Von Hoffman’s unique capabilities.

WTT: The Arcade Marketing business you are proposing to pick up covers a very different area from the other two, which are somewhat related to each other in terms of their specialization in the educational market. Do you see any synergies there?

MLR: All of the businesses will benefit from the obvious procurement scale advantages from this combination. Both Arcade and Lehigh Direct are outstanding producers of very complex in-line printed products. We expect both companies will be advantaged through this combination as we share intellectual capital, improve asset utilization and leverage best practices from both successful organizations

WTT: This deal leapfrogs you into the top tier of the printing industry, at an initial run rate of $1.4 billion, and it sounds as though you may be on the acquisition trail to add more capabilities to the organization beyond the three initial groups. Can you comment on that?

MLR: First and foremost we want to successfully complete this combination and ensure that all three companies are maximizing their opportunities in the marketplace. As I mentioned earlier, these are three high-margin businesses with strong market share positions, very unique production capabilities and strong customer relationships. As we build the company within these core markets and explore other opportunities, we will focus only on businesses and line extensions that can further enhance our consolidated offering.

WTT: I am assuming that all three businesses have a digital element to them. What percentage of the combined production would you say is digital versus conventional offset, and what plans, if any, do you have to add digital capabilities and/or digital workflow elements to the businesses?

MLR: All three companies have strong digital workflows and front end systems. On a limited basis today we are using digital presses at both Von Hoffman and Jostens. As the technologies continue to evolve and our customers demand more specialization leading to even shorter print runs, we will likely see an expansion of our digital print capacity and capabilities.

WTT: Who do you see as your key competitors for the new venture?

MLR: All three companies are market leaders with the #1 or #2 share position in virtually all of our product offerings. Our competitors are different in each market. We plan to continue to invest in our people and processes to ensure that we expand our market leading positions.

WTT: Can you give us some insight into your target customers for the new organization and some of the business applications you will be pursuing?

MLR: Von Hoffman and Arcade have very well established positions with all of the major customers in their markets. Jostens has very broad reach into the school market. Our end market customers are certainly different, but we will introduce the expanded manufacturing capabilities that result from this combination to all of our customers to increase and strengthen those relationships.

WTT: You have had a long professional association over the years with Bob Burton. Does he have any involvement in this venture?

MLR: We do have a very long professional and personal relationship, but Bob is not involved in this transaction. We’re both delighted with the success we’ve each had in our new ventures since our partnership at World Color.

WTT: Mr. Reisch, this is an exciting development, both for you and for our industry. We will be interested to watch its evolution over time. Do you have some closing comments you can share with our readers?

MLR: This is an incredibly exciting opportunity. These are three terrific companies with strong management teams, leading market positions and outstanding manufacturing capabilities. I have many long-term customer and supplier relationships that I’m anxious to renew. I am very fortunate to have two terrific equity sponsors in KKR and DLJMB who are making significant investments into this new company. This is a very special situation and I cannot wait to get started.

WTT: Thanks for taking the time to speak with us today. We wish you all the best and will look forward to catching up with you for an update in the Graph Expo timeframe.

This Interview was conducted by Cary Sherburne. She can be reached via email at cary@sherburneassociates.com, online at www.sherburneassociates.com and by telephone at 603-430-5463.