Swiss manufacturer Biella has become one of Europe’s leading players in the lever arch file (LAF) product category after acquiring Falken Office Products and its two subsidiaries from German vendor Herlitz at the beginning of April.
The acquisition takes Biella’s annual LAF production capacity to around 130 million units, giving it a major share in a European market estimated at 350-400 million units per year. It can now compete with international manufacturers such as Esselte and Hamelin.
Biella acquired Falken for about €22 million ($29 million), with the effective date of the transaction being backdated to 1 January 2012. The assets acquired include three production sites – the Falken operations in Peitz, Germany, Herlitz’s UK facility in Cheshire and Delmet in Romania – and the Falken brand. Together, these businesses, with 330 staff, produced and distributed approximately 90 million LAFs and other filing products in 2011.
The deal highlights the contrasting strategies of Biella and Herlitz. The German vendor – which has been majority owned by Pelikan since 2010 – has been offloading production facilities, selling its envelopes manufacturing business to Mayer-Kuvert in 2008 and its private label soft plastics business Pro Office in the Czech Republic to Austrian producer Ring a year later.
On the eve of the Falken disposal news, Herlitz had said that it would be making structural changes after its pre-tax loss widened to 19.8 million in 2011. The most significant area of sales decline last year was the private label business and the Falken sell-off marks another step in its strategy to focus on its branded product offering.
Biella, on the other hand, has committed to an integrated production and distribution expansion strategy that includes both private label and branded products – its Biella brand is strong in its home Swiss market and the Donau brand is well known in Austria and central/eastern Europe.
Recent developments include the expansion of soft plastics production at the Hungarian facility in Kimle and the installation of more LAF production lines at the Szydlowiec factory in Poland.
Marcus Winkler, in charge of Biella’s communications for this acquisition, told OPI about its benefits.
“We have been expanding our sales team in Germany recently, but the Falken acquisition now gives us a much stronger position in that market and we now also have a presence in the UK for the first time,” he said, adding that the Herlitz UK business had already been renamed Biella UK.
Winkler also said that the greater scale of the combined Biella/Falken operations would enable the company to better compete for business with global accounts. Biella’s previous production capacity enabled it to serve only one of the global players, but the addition of Falken – which already supplies some of the international OP resellers – now changes this.
Winkler could not confirm what the integration of Falken into the Biella group would involve due to the recent nature of the acquisition, but said that the mid-term integration process would be implemented “cautiously” and take as long as necessary. Currently, Falken is operating as a standalone subsidiary.
One thing that Biella will have to tackle is the profitability of its new acquisition. According to stock market documents filed by Pelikan, the Falken business in Germany managed to break even in 2011, while Herlitz UK and Delmet registered net losses of $192,000 and $70,000, respectively.
At the same time, Biella’s own profitability is under pressure as it struggles to pass on raw material price increases to customers and the company’s 2011 EBIT fell by over 50% to SFr2 million ($2.2 million). One impact of the acquisition will surely be to give Biella greater purchasing power which should help boost gross margin, and it should be able to achieve economies of scale.
Improved production efficiency is important in a product category which is facing pricing pressures.On the other hand, Winkler states that the LAF market is holding up well despite the shift to digital storage.
“Everybody was predicting the end of the LAF category, but we’re not seeing that,” he said. “I can’t say it’s a growing category at the moment, but it is relatively stable, and obviously the acquisition of Falken means that we still feel it has a good future.”