Global Graphics to acquire Hybrid software

Readers may remember that back in 2018 Congra Holdings, which owns Hybrid Software, attempted to buy Global Graphics. Well, now Global Graphics is proposing to buy Hybrid Software.

Mike Rottenborn, CEO of Global Graphics.

The shareholders rejected that earlier offer although that attempt did leave Congra with a 50.09 percent stake in Global Graphics. Mike Rottenborn, CEO of Global Graphics, says of this earlier bid: “It failed because not enough shareholders agreed with the price that Congra had offered, and the only way to move ahead other than Congra remaining a 50 percent shareholder is for global graphics either to buy Hybrid, or Congra to buy Global Graphics, and by buying Hybrid we are able to remain a publically traded and listed company.”

There are a number of ties between the two companies. For a start, Guido van der Schueren is chairman of both Congra and Global Graphics. Rottenborn himself is one of the original founders of Hybrid Software and has worked with van der Schueren for several years. In addition there is a cross licensing arrangement between the two companies, with Global Graphics supplying RIPs to Hybrid for its CloudFlow solution and reselling parts of CloudFlow as its Fundamentals front end software, with the obvious opportunity to build on this and exploit further synergies. Rottenborn adds: “I believe this is the right thing and the right way to get Global Graphics into a different gear, or a different lane in the market.”

The proposal is that Global Graphics will issue 21,074,030 new shares, valued at €3.80 each or €80 million in total, which will be given to Congra in return for 100 percent ownership of Hybrid Software. This will take Congra’s stake in Global Graphics up from 50.09 percent to 82.16 percent of the enlarged issued share capital of Global Graphics (excluding shares held in treasury). Van Der Schueren confirms that this deal puts an end to the 2018 takeover attempt and that there are no plans to de-list or privatise Global Graphics. 

Rottenborn says that the price was arrived at following valuation studies by banks in both the US and Europe, noting: “They both came in with the same number and we are square in the middle of that number.” He says that whatever the price somebody will disagree with it but points out: “The other thing to remember is that Hybrid has a very strong recurring revenue component. About 40 percent of their revenue is recurring, whereas in Global Graphics it’s more like 15 percent. So the valuation metrics for a company go off the charts when you have recurring revenue.”

Global Graphics will remain as the parent company and Hybrid will join Meteor and Xitron as subsidiary companies. Hybrid itself is planning to set up a UK subsidiary, which will be located at Global Graphics’ main HQ in Cambourne, UK. Most importantly, Global Graphics will continue to be a publically traded company, able to raise funds via the stock market and with a much higher market capitalisation. Rottenborn explains: “By exceeding a market cap of €100m we become a much more followed stock by a different class of investors and analysts and that should help us to raise the value of the shares.”

What does Hybrid offer Global Graphics?

Its worth noting that back in March 2019, just after Congra had announced that it had acquired a majority stake in Global Graphics, Gary Fry, then the CEO, told me: “The plan was and still is that we were never going to integrate Hybrid and Global Graphics. They are two different companies that go after two different markets. Global Graphics talks directly to equipment manufacturers and Hybrid talks directly to the print shops.”

So, what’s changed since then? Talking with Rottenborn, my impression is that Global Graphics’ priorities have shifted, partly prompted by this year’s pandemic. He told me: “One reason why we want to do this is because the one segment that has done well during the corona virus crisis is labels and packaging and especially digital labels and packaging.” He added: “And Hybrid is how we get into packaging. They’ve got a worldwide support team, they’ve got people in every major market, they have direct sales to end user customers, and have much higher margins than we can sell to OEMs.”

He continued: “Hybrid’s margins are much much higher because they sell to end users and they sell higher in the food chain. Instead of selling components to OEMs they sell products to end users at a significant mark up of what we charge an OEM for a RIP or our products, so this brings us into a different segment of the value chain.”

Rottenborn says that acquiring Hybrid will also help Global Graphics attract more OEM customers, explaining: “I absolutely believe that the Harlequin RIP is the best in the industry and the most innovative. But OEMs today are asking for more solutions, more functionality in the building blocks.” He adds: “Especially in inkjet there are a whole lot of smaller players that are out there who would like a more functional DFE and that’s what I think that we can give them together with Hybrid.”

The deal will be put to a shareholder vote on 8 January 2021 though it only requires a simple majority and Van Der Schueren and his associates can already count on winning this so it’s really a foregone conclusion. The share issue is itself an interesting mechanism for this acquisition. It does risk diluting the share base but avoids borrowing the money and saddling the company with debt. More to the point, if Rottenborn is right and the combination of Global Graphics and Hybrid Software opens up the market for DFEs in the way he hopes, then the value of these shares should also increase.

It’s also worth noting that Global Graphics quietly sold off its URW Type subsidiary back in May 2020 to Monotype, mainly to concentrate on its RIP and workflow software. In any case, you can find more information from globalgraphics.com.


…with a little help from my friends

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