Electronics For Imaging (EFII), which makes hardware and software for commercial and enterprise digital printing, has agreed to go private. Siris Capital, a private equity firm, will acquire the company for $37 per share in an all-cash deal worth $1.7 bln. This represents a 26% premium from Friday's close.
Why would a private equity firm be interested in EFII? The company says that it's "at the forefront of the digital transition in the imaging and print industry" and that by joining with Siris, "EFI will be well positioned to capture this transformational opportunity associated with increased digital inkjet penetration, industrial automation and software enablement."
EFII makes the point that the industrial digital inkjet market is high growth and that there is significant conversion of production from analog to digital inkjet printing. Its flagship products are its VUTEk super-wide and wide format display graphics, Nozomi corrugated packaging and display, Reggiani textile, and Cretaprint ceramic tile decoration. Printing surfaces accommodated by its products include paper, vinyl, corrugated, textile, glass, plastic, aluminum composite, ceramic tile, wood, and many other flexible and rigid substrates.
EFII's business has been struggling of late, so Siris Capital perhaps saw an opportunity to purchase the company on the cheap. In mid-January, the stock gapped lower when the company guided lower for Q4. Management cited weakening economic conditions across its direct businesses for its sub-optimal results. Customers had been delaying spending on capital equipment and software, which materially reduced the company's close rates at quarter end.
Late in Q4, noted the company, a substantial shift in buying behavior versus the prior year became evident in many of the industries served by EFII. This was felt most significantly in the Americas. Customers became increasingly concerned about economic trends, and many accordingly decided to defer cap-ex spending until they had greater clarity on the economic environment.
Specifically, EFII said that it entered Q4 with a robust pipeline, and Inkjet sales progress through mid-December was tracking ahead of the prior year. However, the last few weeks of the quarter were exceptionally weak. The majority of the revenue shortfall came from the company's Industrial Inkjet business, which declined approximately 5-6% yr/yr. Display Graphics and Building Materials, which were expected to be weak in the quarter, were down more significantly than expected.
This deal offers a nice premium for EFII shareholders, and the all-cash nature of the deal is a plus as well. Enterprise printing strikes us as an old school industry, but EFII's point about the high-growth quality of the industrial digital inkjet market amid conversion of production from analog to digital suggests that there is room in the industry for transition and innovation. There also may still be more developments on this purchase ahead as the deal includes a "go-shop" period that will span the next 45 calendar days. This means that if EFII can find a more attractive offer, it can terminate this deal and enter into a new one with another suitor.