EFI is being sold to US private equity fund Siris, which is stumping up $1.7bn in a leveraged all-cash deal for 100 per cent of the shares to acquire the billion dollar technology business, aiming to achieve super-charged growth in packaging and textile printing for its returns.
Siris is paying $37 a share to become the new owner of EFI, a 45 per cent premium over the 90 day weighted share price, and 26 per cent over the the price prior to the buyout being announced. It will pay around 40 per cent as equity and 60 per cent as debt. The deal is subject to shareholder approval.
Siris has an investment strategy of buying companies that have a strong legacy business and cash flow, together with the potential to dominate markets through technology disruption. In EFI it sees the Fiery, MIS and wide format inkjet as its income base, while in digital corrugated printing, and in digital textile printing, it sees the company well positioned to become a major player in what could be huge markets in the next few years.
Speaking to PKN as the deal was revealed, EFI chief financial officer Marc Olin said, “It will allow EFI to do good things. It will drive investment in high growth areas, including digital corrugated and digital textile printing. It will also allow us to continue to invest in our Fiery, wide-format and MIS operations. For the company, our customers and our employees, the Siris investment is good news.”
According to Olin, the digital corrugated printing equipment and inks market will rise from its current small base to $9bn, with textile digital printing equipment and inks market to hit $4bn. He said, “We anticipate EFI will be the largest player in the market. We recognise other companies are positioning themselves there too, and see that as a positive, as it will all help drive the market.” EFI manufactures the Nozomi digial corrugated printer, and Olin says there wil be more versions launched.
For EFI the Siris money will provide the injection it needs to take the company forward into new areas it needs in order to grow the business, as its legacy divisions, while delivering cash flow, have limited growth opportunities. And as EFI will delist from the Nasdaq, it will take the company out of the 90 day reporting cycle which consumes a fair amount of management focus.
Private equity funds like Siris typically stay with a company for the first three to six years while they aim to boost the revenue, before selling and cashing in. They can also load the company with debt to pay for their acquisition in a leveraged buyout, as in this case.
An affiliate of Siris Capital will pay $1.7bn for EFI, although under terms of the deal EFI has the next 45 days to find another buyer prepared to offer a higher price, with Siris then having the right to match any offer that comes in.
The two nascent markets identified by Siris have been front of mind for new EFI CEO Bill Muir. Speaking with me at its user conference Connect in January, Muir indicated that is where he saw the growth opportunities, telling me, “I am looking at textiles and packaging in particular. I can see there are really good logical opportunities in these markets, both of which are a significant size.” It seems the Siris execs share his view, betting $1.7bn on those markets being realised.
EFI is one of the biggest technology companies in print, with a global reach, developing and manufacturing inkjet printing systems for multiple applications, along with digital workflow and MIS, and the Fiery rips on which the company was established. It is a major supplier to the Australian and New Zealand print and packaging industries. It was established in 1989 by Israeli genius Efi Arazi, who had previously founded Scitex, Israel’s first high tech company. Sales in the first year were around $2m, last year they touched the $1bn marker.
Commenting on the Siris deal EFI CEO Bill Muir said, “We believe this transaction delivers superior and immediate value to our shareholders while providing us with a partner that can add strategic and operational expertise to our business. We are excited to partner with the highly experienced Siris team on this next phase of growth for EFI.”
Muir took over as CEO last year, succeeding long time leader Guy Gecht who had a 17-year tenure at the top. Current share price at EFI is around $29, it was $44-$47 in the 2014-2017 period, but then slumped by a third overnight two years ago, over an accounting issue. At its peak at the height of the dotcom boom in 2000 it reached $63, but when the boom collapsed it sank back to $15, where it remained for the next dozen years, until it tripled in value between 2012 and 2014.