Sector Report

Printing Industry

Paul Whitney

Corporate Finance Director

Overview of the Market

The U.K. printing industry has an estimated market size of £9.9bn in 2018, a 0.9% increase on the previous year. The industry experienced a compound annual growth rate (CAGR) of -0.5% through the five years to 2018-19. The constrained nature of the industry's performance over the past five years is attributed to digital alternatives to printed materials, such as e-books, growing rapidly at the start of the five-year period through 2018-19. The rapid growth in e-books, which are a competitive threat to the industry, is expected to have slowed in the latter part of the five-year period as consumer interest in printed books was renewed. Despite this, overall demand for printed materials from retailers, manufacturers, publishers and service providers has fallen over the past five years as consumers and businesses gradually moved towards trading online.

Industry revenue is forecast to grow at a modest compound annual rate of 2.6% over the five years through 2023-24 to £11.3 billion. The resurgence in popularity of printed books is expected to support revenue growth over the two years through 2018-19, following several years of contraction. The EU referendum in 2016-17 led to a fall in consumer confidence, which lowered consumer spending. This in combination with rising inflation is expected to constrain the level of revenue growth achieved from growing book and packaging sales.

The industry is expected to continue to face strong competition from substitutes for commercially printed material, such as online advertising and publication of information. Many retailers, financiers and service providers are expected to move their services online, limiting demand for industry services. Commercial printers are anticipated to introduce different services to increase revenue and remain profitable. However, some of these services will not be relevant to the industry.

A profitability analysis on the sector from a pool of 1,459 leading UK-based Commercial Printing companies revealed the following points:

  • 510 companies in the industry increased in value over the last year, 230 of these increased by more than 25%
  • 679 companies decreased in value, 276 of these decreased by more than 25%
  • The most profitable 507 companies made an average profit margin of 5.1%
  • The least profitable 952 companies made an average profit margin of (0.6%); the industry average was 1.1%

Based on analysis, companies were rated on their ‘takeover attractiveness’. A total of 558 companies were given the highest available rating of ‘Strong’ whereas there was almost the same amount, 435, that received the lowest rating, ‘Danger’. Despite this large amount of companies being in danger, there were 246 companies that were highlighted as highly attractive takeover prospects with a further 1,037 companies that are worth considering.

M&A Activity in the Sector

Market IQ data indicates a total of 233 significant deals in the industry from January 2011 to September 2018, with UK targets. Deals are only reported over a certain value threshold (c.£500k), therefore, it is likely that not all deals have been captured. Data consists solely of Acquisitions, Management Buy-outs, Management Buy-ins, Secondary Buy-outs and Mergers

Upon breaking down the deal type, M&A activity within the sector is mainly categorised by acquisitions, with 178 since January 2011. There were also 36 MBOs, 8 mergers and 4 MBIs. A geographical breakdown of the deal shows that London and the North West dominate M&A activity, benefitting from 32 and 30 deals respectively. The East is close behind with 29 deals completed. The remaining deals are spread through the U.K.; slowly declining in number to the North East, with only 6 deals.

Deal flow has been significant in each year, with a somewhat volatile upward trend through 2011-2016 to 40 deals and nil growth in 2017. This is likely characteristic of the uncertainty effect of the UK’s exit from the EU. Without the clarity that a deal will bring, UK businesses are highly likely to be risk adverse. The data gives 23 deals through September 2018, forecasting the same rate to the end of the year gives 31 deals. A lower M&A level than 2017.

Industry Benchmarking Information - September 2018

Hallidays’ client base consists of small to lower mid-market enterprises. Our benchmarking analysis reflects businesses with turnover below £20m, in line with the majority of our clients in this sector.

Printing Benchmarking Data Mean Median Lower Quartile Upper Quartile
Turnover Growth/Decline (%) 3.74 3.08 (6.35) 12.13
EBIT Margin (%) 5.86 4.79 0.84 10.34
EBIT Growth/Decline (%) 17.04 5.96 (35.64) 100.00
EBITDA Margin (%) 9.61 8.72 3.48 15.36
EBITDA Growth/Decline (%) 12.41 8.89 (25.71) 85.76
Total Net Assets Growth/Decline (%) 11.08 7.89 (4.05) 21.91
Current Ratio 3.28 1.33 0.82 2.49
Acid Test 3.05 1.20 0.71 2.28
Benchmarking Criteria

Using full company accounts filed in the last two years, excluding companies with nil turnover in either period.
Search Criteria: SIC-Code “181 Printing and service activities related to printing”.
Turnover below £20m.

M&A Activity Source

Experian Market IQ (September 2018)
Search Criteria: SIC-Code “181 Printing and service activities related to printing”.

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