Phillips masters graphics

When Phillips Litho sold last year to Master Graphics Inc., each of the 120 employees at the Springdale printing company received stock options. That wasn’t part of the deal that Phil Phillips Jr. had struck with the Memphis-based company.

“It was a gift,” he says.

Master Graphics is doing to the printing business what StaffMark Inc. has done for the staffing business: consolidating small independent companies to take advantage of the resulting economies of scale while building a large company.

Since its initial public offering on June 10, Master Graphics stock has been as high as $10.25 a share and as low as $4.75. More recently, it’s been around $5 a share, but Phillips and others believe it’s destined to do better.

“We really think it’s going to do well,” Phillips says, “[but] we haven’t had very much time on the board.”

Some market observers agree with Phillips. Memphis-based Morgan Keegan & Co. initiated coverage of the company last year and predicted an annual growth rate of 25 percent for the next five years.

Just last month Master Graphics acquired its 16th firm, Technigrafiks of Houston with $14 million in annual revenues. That purchase gives Master Graphics combined annual revenues of $225 million, still a mere pittance of the estimated $132 billion that the printing industry generates annually. The commercial printing industry, of which Master Graphics is a part, generates about $43 billion annually.

But it’s a fragmented business with thousands of relatively small printers. Morgan Keegan’s analysts estimated that there are 17,000 printers with annual revenues of less than $2 million annually. Another 3,000 to 5,000 printers have annual revenues of between $2 million and $15 million each and those, Morgan Keegan suggests, are ideal acquisition targets for Master Graphics. Phillips Litho fell squarely in that category with annual revenues of about $13 million.

Phillips explains the attraction of selling to a company like Master Graphics is the competitive edge it adds. Rapid changes in technology make it difficult — and incredibly expensive — for small, independent printers to keep pace, he says.

“To compete for customers, we’re going to have to have more to offer than we have in the past,” Phillips says. “To keep up and to be a leader in the industry, you’re going to have to have access to more equipment. … The capital [investment] requirements are too great for the small guy.”

Master Graphics’ master plan, however, is all about growth, he says, and that should help the printers it adds to the fold.

In 1997, Phillips Litho spent $5.5 million for paper. In 1998, Master Graphics purchased more than $78 million worth of paper.

“We have tremendous buying power,” Phillips says of Master Graphics’ consolidated group of companies.

Master Graphics has enhanced Phillips Litho’s available technology, too, by speeding up the pre-press procedure.

“Our bottleneck … is always in the pre-press area,” Phillips says. “You get the [customer’s] information, put it in the form it’ll print, pull and proof and invariably there are changes.”

Now, the information can be sent electronically to Master Graphics’ pre-press center. When it’s ready for printing, it’s returned, also electronically, to Phillips Litho or whichever division originated the order. That speeds the process along and enables Master Graphics’ divisions to handle more business by distributing work. Because all the work is done within the Master Graphics’ group, quality control is assured, Phillips says.

Phillips met Master Graphics’ CEO and founder, John Miller, through industry connections. At the time, Phillips wasn’t ready to sell, but Miller’s entrepreneurial vision impressed him. “I just had an instant like for him.”

Miller, Phillips recalls, had purchased his first printing company in Memphis and quickly realized that the industry was full of family owned companies that could be brought together for greater impact and returns.

“He’s got a great vision for the longevity of the companies that he buys,” Phillips says of Miller.