Date November 2019
By the numbers
- Manufacturing capacity has remained steady at around 75 percent during the past five years but has ticked up slightly as businesses consolidate and older equipment is taken offline
- Despite declining demand for printed magazines, newspapers, books, and advertising, the industry has remained resilient by diversifying into digital services and value-added business lines; however, growth in these areas is unlikely to overcome declines in printing revenues during the next five years
Web-Offset Printing Facing Challenges: In web-offset printing, a continuous roll of paper is fed through the printing press, pages are separated, and then these pages are cut to size at high speed. These machines are commonly used to produce high-volume publications such as books, magazines, newspapers, catalogs, and advertising inserts. While this type of printing once dominated the industry, consumer trends towards digital media have devastated the segment, along with equipment values.
The initial investment in web-offset machines is high and can exceed a million dollars. There are two major classes of machines: coldset and heatset, which refers to how ink is dried. In coldset printing, aqueous ink dries through evaporation and absorption, but it can leave residue on the paper that rubs off on readers’ hands. In heatset printing, paper is run through machines with dryer systems that evaporate oil-based solvents in ink. The paper then passes through chilling rollers, where waxes and resins set. This is the process used for all coated papers and results in a more upscale product. But the additional equipment means these machines are also more expensive.
In addition to the number of impressions a machine has run, its cutoff, width, and age are all value drivers. The length of the circumference of a blanket cylinder is called the cutoff. This measurement determines the number of pages that can fit onto each imprint and, accordingly, the amount of paper waste. Because paper means money, the cutoff is crucial to calculating the profitability of producing different projects. Today, most buyers are looking for machines capable of printing at least 24 pages at a time.
Standard machines are widely marketable. However, narrower web machines (8 to 24 inches) used in niche markets, such as business forms and labels, have a smaller pool of buyers. Some machines can handle rolls up to 50 inches wide. These large format machines are very specialized and have narrow marketability. Regardless of the size of the machine, removal and reinstallation costs of web-offset presses are typically substantial, which is why machines are often sold in-place to strategic buyers. Bankers who lend against this equipment may wish to consider appraising machines on an installed basis. In this scenario, values may be higher and more reflective of the value of the equipment if sold as a going concern.
The typical useful life for web-offset presses is 15 to 20 years, after which point there is little value. Rebuilds may help a machine maintain its value, but they typically do not increase it. While there are relatively few new machines coming online anymore, there remains an active used market.
Sheet-fed Printing Remains Stable: While sheet-fed presses are slower than web-offset machines, they offer more flexibility as a large number of sheet sizes and format sizes can run through the same press. Six-color, 28 by 40 inch machines are an industry staple and are widely transacted on the secondary market. During the past 12 months, values for these machines have remained stable. While demand has fallen less than for web-offset machines, the market remains soft. However, certain sectors are faring better than others. For example, equipment used in the packaging market has been selling well.
Wider format machines have niche applications such as printing point-of-purchase or signage. Because of their narrow marketability, expect values on even very new machines to fall as much as 50 percent during the first two years of operation even though the useful life of the machines may be 15 to 20 years. They also take longer to sell. Wide format machines are almost never auctioned but typically sell via private party. Discuss the appropriate timeframe for an orderly liquidation value with your appraiser to ensure the most realistic exit strategy.
Do keep in mind that componentry can add value. A perfecting press, which enables a machine to print on both sides of the paper at the same time, is desirable and an expectation of most buyers today. Coaters and drying systems, which can improve the quality of products and turnaround times, are other key options. Make sure equipment listings detail these important specifications.
Digital Printing Rapidly Advancing: The fastest evolving printing sector is digital. These versatile machines can cost effectively produce smaller runs, handle a wide variety of paper sizes, and print in increasingly higher resolution. But rapid technological advancements are also what make it riskier collateral for lenders. Traditional web-offset and sheet-fed presses may have a 15 to 20 year useful life, but digital machines depreciate faster and may have a useful life as short as five to eight years. Value falls steepest during the first year; a new digital piece of equipment could drop 35 to 50 percent the first year and an additional 25 to 50 percent the following year. This is a key consideration when thinking about the term of the loan. Equipment that may look very valuable at the onset can quickly become obsolete, which is why many digital printing machines are leased.
Another key consideration is the contracts that accompany the machine. Digital presses are sold with software agreements and often contracts for maintenance and consumables, and these can be difficult to transfer when the machine is sold. In most instances, buyers of used equipment have to set up new agreements and may have to pay additional fees to license software. These additional costs can be significant and create an incentive for buyers to purchase new. While there are no consistent rules for whether contracts can be sold with a used machine, the bottom line is that the manufacturer, not the seller, controls what is or isn’t transferable. Oftentimes, the manufacturer sets these prices much higher than the market is willing to pay in order to protect their product.
Value-added Services and Digital Services Increasing: Increasingly, traditional printers are transforming themselves into different business models to adapt to changes in media consumption. Digital publishing, the integration of mobile enhancements into print, and data analytics services are just a few of the ways printers are approaching their customers’ evolving challenges. The revenue generated from these added capabilities is driving growth for many in the industry, even more so than the expansion of the production floor in many cases. For businesses with well-developed service models, it may be worth considering evaluating the business’ value on an enterprise basis rather than valuing its components to ensure these streams are appropriately captured.