IWCO Direct Acquired for $476M in Cash by ModusLink in Year-End M&A Shocker

ModusLink Global Solutions has acquired Chanhassen, Minn.-based IWCO Direct, a privately-held provider of data-driven direct marketing solutions, for $476 million in cash, culminating a mega-deal that ends the chapter of IWCO Direct as the largest standalone direct mail printing entity in the United States.

Jim Andersen, CEO of IWCO Direct, will remain onboard.

IWCO Direct becomes a wholly-owned subsidiary of the publicly-held ModusLink Global Solutions. IWCO Direct will continue to be run by Jim Andersen, who has served as CEO since 1999. ModusLink Corp., the company’s digital and physical supply chain business, will continue to be run by Jim Henderson.

Funding for the acquisition of IWCO Direct was provided through cash and debt financing provided by Cerberus Business Finance, as the administrative and collateral agent, and consists of a term loan in the principal amount of $393 million and up to $25 million in borrowing capability under a revolving credit facility.

Traded on the NASDAQ, Waltham, Mass.-based ModusLink Global Solutions is a global provider of digital and physical supply chain solutions. With operations supported by 21 sites across North America, Europe and the Asia-Pacific region (particularly mainland China), ModusLink partners with global brands across a range of industries, including consumer electronics, telecommunications, computing and storage, software and content, consumer packaged goods, retail and luxury, among others.

According to Wikipedia, ModusLink Global  Solutions' predecessor company was CMGI Inc., an Internet company that at one time was "a poster child of the dot-com collapse." In fact, CMGI reportedly held the naming rights to the New England Patriots (now Gillette Stadium) from 2000 to 2002. In 2004, CMGI acquired Modus Media, and CMGI's SalesLink supply chain business was combined with Modus to create ModusLink. The company maintained a number of Internet ventures during its history, Wikipedia reports, including 1stUp.com, AdForce, AltaVista, BookLink, iCast, NaviSite, PowWow chat instant messenger, RagingBull.com and Yesmail. In 2008, CMGI changed its name to ModusLink Global Solutions.

Warren Lichtenstein, executive chairman of ModusLink, said, “We have been looking to acquire a profitable business with attractive operations and financials, and with a strong management team in order to leverage our approximately $2.1 billion in net operating loss carryforwards (NOLs) and cash. We found a great fit in IWCO Direct.

"We essentially double the size of our company and add significant earnings and free cash flow," he continued. "We add a market leader with industry-leading solutions, a client base consisting of Fortune 500 companies, and significant opportunities to drive both top- and bottom-line results. We intend to aggressively grow IWCO Direct, organically and through acquisitions ...”

For the past 12 months through October 2017, IWCO Direct had net revenue of $470.6 million, net income of $18.9 million and EBITDA of $82.2 million. For the last 12 months through October 2017, ModusLink had net revenue of $417.8 million, a net loss of $22.5 million and negative EBITDA of $3.8 million, although net loss and EBITDA improved by $32.5 million and $28 million year-over-year, respectively, as a result of the corporate turnaround plan launched in May 2016.

IWCO Direct Ranked No. 1 Among Direct Mail Printers

As the U.S. direct mail printing sales leader and the largest privately held printer listed on the just-published Printing Impressions 400 list, IWCO Direct is trailed by No. 2 ranked Sussex, Wis.-based Quad/Graphics, with most recent fiscal year direct mail segment sales of $346.4 million; Wheeling, Ill.-based SG360°, a Segerdahl Co., with $288.3 million in direct mail revenue; Newington, Conn.-based Data-Mail Inc. with $153 million; and Milton, Wis.-based Freedom Graphic Systems with $152.57 million in direct mail sales. (RR Donnelley spinoffs RR Donnelley and LSC Communications do not break down their sales, so are not included.) The complete 2017 Printing Impressions 400 list of the largest printers in the U.S. and Canada ranked by annual sales can be accessed by clicking here.

“We are excited to join forces with ModusLink,” said Jim Andersen. “Their commitment and expertise, combined with our advanced data-driven marketing solutions, make this new combination advantageous for IWCO Direct’s customers and employees, as well as our new shareholders. "The future of data-driven direct marketing has never been stronger. The flexibility of becoming part of a global organization will allow us to continue to invest in new technologies and service offerings, further driving value and a greater return on marketing investment for our customers to strengthen their customer relationships and increase revenue."

Andersen also wrote a blog to explain the decision to couple with ModusLink, which can be accessed here.

Private Equity Seeks Select Printing M&A Deals

Additionally, it was announced that Steel Partners Holdings increased its investment in ModusLink through its affiliate SPH Group Holdings, with a $35 million convertible preferred stock investment, which together with its affiliates, brings its beneficial ownership in ModusLink to approximately 52%. Proceeds from the $35 million convertible preferred stock investment will be used for working capital and general corporate purposes.

This illustrates another example of private equity's interest in the printing industry, especially in strong growth markets like direct mail and content management services. SG 360° (ranked No. 16 on the PI 400; total sales $310 million) and Hartland, Wis.-based OneTouchPoint Inc. (ranked No. 33; total sales $138.1 million) are both backed by private equity firm ICV Partners.

IWCO Direct's full range of services includes strategy, creative and production for multichannel marketing campaigns, along with a sophisticated postal logistics programs for direct mail. Through its Mail-Gard product, IWCO Direct also offers business continuity and disaster recovery services to protect against unexpected business interruptions, along with providing print and mail outsourcing services. IWCO Direct claims to have the largest platform of continuous digital print technology (including a  contingent of high-speed production inkjet printing equipment primarily from Canon Solutions America and Screen Americas) and a growing direct marketing agency service.