Donnelley Buys Sequence Personal - Analyst Blog

Printing major R.R. Donnelley & Sons Company (RRD) recently announced that it has acquired New York-based privately held software company Sequence Personal, for an undisclosed amount.

Sequence’s custom publishing software helps publishers to select content, which can be digitally produced as a specialized publication. The proprietary software also enables publishers to develop targeted content for readers and advertisers.  

Donnelley will integrate Sequence Personal into its CustomPoint Solutions Group. The Group provides a host of services to customers including innovative content creation, management and delivery.

Donnelley believes that the addition of Sequence’s technology to its group of solutions will boost the revenue earning capacity of its customers. We believe that the acquisition will also enable Donnelley to expand into new verticals and help it gain significant market share going forward.

Donnelley’s growth has been primarily driven by significant acquisitions over the last few years. From March 2008 to date, the company has acquired 6 companies, 3 of which were in 2010 and 2 in 2009. In the first half of 2011, Donnelley acquired 2 companies including Helium, Inc. and Journalism Online, LLC.

Although the company acquired 3 companies in 2010, the most significant was Bowne & Co, a provider of digital one-to-one printing services for health care, transactional communications, financial services, marketing communications and other applications. The Bowne acquisition proved accretive to Donnelley in the very first year. Bowne contributed 0.6% ($61.2 million) of the total revenue growth of $161.5 million in fiscal 2010.

In December 2010, Donnelley acquired San Francisco-based Nimblefish Technologies, a provider of multi-channel marketing services to leading retail, technology, telecom and hospitality companies. Donnelley also acquired the assets of 8touches, an online provider of easy-to-use tools that allow real estate associates, brokers, Multiple Listing Service (MLS) associations and other marketers to create customized communications materials.

We believe Donnelley is emphasizing on acquisitions to expand and enhance its offering to its current customers, as well as to create more opportunities for its products to reach new clients. The company’s continued focus on acquisitions will also spur its already dominant market position and drive long-term growth, in our view.

Recommendation

We remain Neutral on a long term basis (3-6 months). Donnelley is witnessing stabilization in demand, increase in volumes and new customer wins. We believe that strong alliances and customer wins including those of AT&T Inc. (T) and Verizon Communications Inc. (VZ) will create value for the company over the long term.

However, we prefer to remain on the sidelines due to weak macro economic conditions prevailing in most of Donnelley’s current and prospective markets. Moreover, higher pension expenses, continuing pricing pressure, volatility in raw material prices and a highly leveraged balance sheet are significant headwinds going forward.

Currently, R.R. Donnelley has a Zacks #4 Rank, which implies a Sell rating on a short-term basis (1-3 months).

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