Financial Printing -- Bulls in a Bear Market

BY Chris Bauer

Managing Editor

No segment of the printing industry has undergone the vigorous changes that the financial printing market has experienced in the past few years.

Financial printers traditionally positioned themselves as document experts, who helped clients manage production of documents and regulatory filings. They would manage the style and formats necessary to satisfy SEC financial regulations. As long as the economy sustained business growth, financial printers report that they saw no reason to change. When the economy was booming in the 1990s, financial printers simply invested in building an infrastructure parallel with a market acceleration that, odds are, will never be seen again.

That business model just doesn't cut it anymore. In recent years, several shifts in the marketplace collided to challenge the capital markets and investment fund industry—and, by affiliation, financial printing, explains Terry Trayvick, president of RR Donnelley Financial.

"The economic environment decelerated, and then almost halted activity," Trayvick recounts. "Market cycles mandated increased flexibility and a decrease in cost infrastructures that were too large for sustainable value. The Sarbanes-Oxley Act, combined with recent regulation impacting the mutual fund industry, generated sweeping change that has amplified transparency, accelerated greater disclosure and demanded flexible filing options for the increased documentation. New technologies spawned new protocols, new opportunities and new requirements for collaborative communication systems."

These cyclical markets, new technologies and continuous regulatory change have produced huge and dynamic challenges for the capital markets and investment fund communities, the financial printing exec says. And, in serving this community, members of the financial printing industry faced a choice—adapt to meet the needs of the client's changing landscape, or be left behind.

"To become even more flexible and agile in responding to rapid change, during the past two years RR Donnelley Financial has closely analyzed its business, intently listened to its clients, relentlessly evaluated the role of the financial printer, and persistently and methodically explored how to best meet the capital markets and investment fund community's changing communications needs—for today and in the future," Trayvick says.

A similar standpoint is echoed by Reed Smith, president, Bowne Financial Print. The ability to forecast effectively, which includes the continuous feedback received from the law firms and investment bankers that financial printers deal with, is key in keeping up with market trends, he notes.

"We have continued our focus on quality by reviewing processes and procedures to ensure that we continue to deliver the best products and services in the industry," states Smith. "The work we have done in the quality arena will position us for continued market leadership and exponential revenue growth once the economy has significantly picked up."

Although the financial printing sector has seen some tough times as of late, the outlook of printers in this market is not all doom and gloom. There are some signs that recovery has begun.

"Basically, it's been a year of contrasting halves," Donnelley's Trayvick assesses. "The first months of 2003 were, very simply, a continuation of what we saw in 2002. At the end of the first half, however, we began to see some hopeful signs that resulted in a significant upturn in the market in the third quarter."

To that end, Trayvick offers several positive points as examples:

* On the IPO front, filings were up more than 121 percent in the third quarter of 2003 compared to the same period in 2002. In the third quarter of 2003 there were 51 IPOs, compared to 29 for the first half of 2003.

* In the third quarter, mergers and acquisitions (S-4) were up more than 56 percent compared to the similar period in 2002. There were 211 mergers and acquisitions in the third quarter, versus 296 for the entire first half.

* Donnelley anticipates some increased fund growth in parallel with increasing investor confidence brought about by recent SEC regulations and rule proposals.

"The year 2002 started out strong and we were very encouraged by performance during the first six months," adds Bowne's Smith. "Then the anticipation of and ultimate war in Iraq started, and the markets went silent, making the second half very weak. The first half of 2003 continued to be slow, but a gradual improvement was noticed after March. We continue to see positive signs in the market and remain cautiously optimistic."

Since IPOs started to make a comeback, Smith points out, it has resulted in an increase of activity for Bowne—especially from what the company saw in the first half of the year.

To handle the anticipated growth and new government standards, as well as to satisfy ever increasing demands of customers, financial printers are evolving to meet these changing requirements.

For example, year-to-date through September, Bowne reports it has experienced a 66 percent year-over-year increase in the number of electronically composed, on-demand documents created through its new enterprise solutions capability.

Also, the aforementioned Sarbanes-Oxley legislation requires a number of changes for companies and individuals who file with the SEC. BowneFile16 was created to satisfy one of these new requirements for insiders who must now report any change in their stock holdings within two days of a transaction. Smith describes BowneFile16 as an easy-to-use, Web-based, self-filing solution that has proven to be popular with Bowne customers.

"We also continue to provide electronic delivery services that are constantly evolving to meet the changing needs of our clients in today's complex regulatory environment," he stresses. "The opportunity to assist companies with their regulatory requirements represents a growing market with virtually limitless potential."

In 2002, RR Donnelley Financial launched NET.filer to enable low-cost, self-service online filings direct to the SEC for high volume, low complexity filings, such as Insider Trading forms. Trayvick points out that Donnelley was the first company to apply and file with the SEC-required XML language. In the very near future, he says the company will announce a significant expansion of NET.filer and will focus on adding additional filings in 2004.

By meeting customers needs and changing with the times—not to mention a better overall economic outlook—financial printers are cautiously optimistic for the future.

"We expect the current upswing in market conditions to gain momentum throughout 2004 as the result of economic growth, the SEC's actions throughout 2003 to regain investor confidence in the capital markets, and the SEC's continuing and anticipated actions to improve investor confidence in mutual fund investment," Trayvick predicts.

A similar forecast is provided by Bowne's Smith, who feels there are signs of a stronger 2004 for the financial printing sector.

"We see continued improvement and stability in the marketplace for the coming year," Smith observes. "IPOs are the best bellwether for our industry and the trend in this area is looking good. Also, our business units that offer digital and electronic solutions are gaining momentum, and we see improved contributions from these areas. Overall, we are cautiously optimistic that business will stabilize and continue to grow over the next 12 to 18 months."