Analysis: Siris Capital Acquires EFI in First Deal of Technology Buyout Fund

EFI: The Acquirer Is Acquired

Siris Capital Group, LLC, a New York City-based private equity firm founded in 2011, announced the acquisition of Electronics for Imaging, Inc. (EFI) this week. The buyout is a pivotal moment for both graphic arts and industrial segments due to both the size and role that EFI plays throughout the industry; it is also a tribute to EFI’s skill, not only at acquiring promising companies over time, but also enlisting their talents and technologies to create synergy for whole of EFI. EFI’s many parts, from the original Fiery business to the industrial print technology divisions that EFI has acquired or developed over time, have become strategic partnerships, ones spanning hardware and software in sectors as diverse as networked office printers, sign & display graphics, ceramic, textile, and corrugated printing, all aided by a vast portfolio of workflow solutions.

The details of the transaction include a $1.7 billion all-cash investment which values EFI stock at $37 per share, approximately a 45% premium over the 90-day volume-weighted average price on April 12, 2019. Although the deal is expected to close by the third quarter of 2019, EFI can accept proposals from other companies over the next 45 calendar days.

Siris’ First Deal in Technology Buyout Fund

Private equity firms continue to focus on print-related technology companies with solid cash flows and future earnings potential as the analog-to-digital transformation continues for segments in our industry. Frank Baker, a Siris Co-Founder and Managing Partner, commenting on the role that EFI plays in enabling digital transformations, said  “We believe that, by partnering with Siris, EFI will be well positioned to capture this transformational opportunity associated with increased digital inkjet penetration, industrial automation and software enablement. We are eager to partner with management to help the Company achieve its strategic objectives.”

The investment in EFI marks an important milestone for Siris. Previous acquisitions by Siris have largely been in the telecommunications industry, although a few have been technology-focused. In April 2019, Siris announced its  Technology Buyout Fund was ready to make investments. Using this fund, Siris continues its established strategy of controlled investing, targeting mature mission critical companies that are navigating technology transitions, which mirrors EFI’s trajectory. The EFI acquisition would leave nearly half of the fund to seek additional targets. Only time will tell if any further acquisitions will be for print-related companies.

EFI’s Strategic Trajectory

The solid revenue growth of EFI to the $1 billion revenue mark along with their strategy to focus on high-growth opportunities in emerging digital printing markets likely contributed to Siris’ pursuit of EFI.

A review of EFI’s public filings from 2013 to 2018 shows the revenue progression for the three main divisions: Industrial Inkjet, Fiery, and Productivity Software. While Fiery has remained relatively flat and Productivity Software has seen steady growth, EFI’s revenue has increasingly come from the Industrial Inkjet division. As of 2018, the Industrial Inkjet division represented almost 60% of total revenue and experienced an 11.4% CAGR during 2013-2018.

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Coincidentally, the Productivity Software and Industrial Inkjet divisions have also been the most active in strategic acquisitions and initiatives during this period. The Productivity Software group acquired ten software companies, including Corrugated Technologies, Inc. (CTI), Escada, and Optitex, enabling EFI to focus on building end-to-end production ecosystems for industry segments ripe for digital transformation, notably packaging, textiles, and industrial printing.

The same pattern repeats for the Industrial Inkjet group that strategically acquired ink manufacturing from companies like Polymeric Imaging and Rialco and printing equipment vendors like Matan, CretaPrint and Reggiani. EFI’s workflow solutions, inkjet writing systems, transport engineering , as well as inkjet ink combine to form an ecosystem the company use to replicate products development across their target industry segments including ceramic tiles, packaging, textile and woodworking. These development include:

• Nozomi, introduced in 2016, for corrugated packaging  a key growth industry segment (Keypoint Intelligence forecasts global square meters of digitally printed corrugated will increase by 47% CAGR during 2017-2022).
• Cubik introduced in 2017, aimed at the budding digital direct wood printing surfaces a market
• Bolt  by EFI Reggiani, introduced in 2018 aimed at the growing opportunity in fabric printing (reaching 4 Billion square meters in 2022 a 19% CAGR according to the Keypoint Intelligence 2017-2022 Digital Textile Forecast).

The Bottom Line

The injection of capital from Siris should allow EFI to execute more rapidly on key strategic initiatives, specifically market segments experiencing analog-to-digital transformation. As with any acquisition, it takes a bit of time for the dust to settle and plans to be implemented, but the market opportunity does exist if the execution follows.