The Short-run Kings
Edward Brothers and Malloy join forces
by Bertie Bonnell
From the June, 2012 issue
The Edwards Brothers-Malloy merger created one of the country's largest book printers. Now it just has to survive wary publishers, canny libraries, and the rise of e-books.
The two time-honored book printers have been caught up in the ever-widening ripples of a revolution in the publishing industry. In February Edwards Brothers and Malloy Inc. announced their merger, and their venerable brands morphed into Edwards Brothers Malloy. With 657 employees locally, 958 worldwide, the new company is the sixth-largest book manufacturer in the country and the area's third-largest private employer.
The backstory of the merger is about momentous changes in book publishing--changes that affect not only the area's many book manufacturers, but also authors, educators, booksellers, and readers.
Edwards Brothers has been in business in Ann Arbor since 1893. As the area's first "short-run" publisher, it specialized in printing orders that average 2,200 copies for publishers, authors, scholarly societies, industrial firms, universities, and others. But "in 2009 the economy imploded in conjunction with the advent of the e-book--two perfect storms," says John Edwards, who ran the family-owned firm from its sprawling plant on S. State. "Sales were down about 10 percent."
Last summer, Edwards says, he began thinking about joining forces with another company: He asked himself, "Who was hard-wired to be similar to me? Since we're a family business, it can get complicated. One name kept popping up--Malloy. They have a great reputation for service and a very strong financial foundation."
Last August, Edwards called Bill Upton, Malloy's CEO, and invited him to meet at Barton Hills Country Club. They were due for a golf game, but Edwards thought lunch would be a better setting for the conversation he had in mind.
Malloy was a book printer with 200 people at its plant in Scio Township. Former Edwards Brothers employee Jim Malloy founded it in 1960, and the Upton family bought it in 1966.
John Edwards and his twin sister, Laura, went to school with Bill Upton's brother Joe. Their parents knew each
other socially. Edwards and Bill Upton started playing golf together during meetings of the Book Manufacturers' Institute. That standing game eventually became local.
At Barton Hills last summer, Edwards gently brought up the possibility that the two firms might do better together than apart. "He talked about the industry changing, needing critical mass to gain business from larger publishers, said we had digital book-processing capability that he'd wanted to develop," Upton recalls. "I was skeptical when I thought of the mountains of things we'd have to work through to integrate."
They decided to keep talking. During several months of surreptitious meetings on Saturdays, in a conference room at Plante Moran and at Bill Upton's house, they explored whether merging made sense. Bill's brother Joe, Malloy's vice president of sales and marketing, and their father, Herb, who at eighty-six still comes to work every day, also participated. (John's sister, now Laura Conlin, and brother Jim also work at the company.)
While Edwards Brothers printed more "trade" books, destined for bookstores and libraries, Malloy had a strong niche in "el/hi," elementary and high school textbooks. But that market, too, was in trouble. "Public school budget battles meant that 2009 and 2010 were not good years," Upton recalls. "Even though school districts spend less than 1 percent on curriculum materials, many considered textbooks dispensable when their budgets were cut.
"From late summer of 2008 to 2009 the volume of work dropped," Upton continues. "We brought expenses down, and thought we'd wait it out. We announced temporary wage reductions for three to four months, and a plan offering voluntary separation. Those were tough meetings. But afterward people came and said they understood how hard it was. And they asked, 'Are you okay?'"
In addition to the troubled textbook market, Upton told Publishers Weekly last fall, book manufacturers were hurt last year by Borders' bankruptcy and the encroachment of e-books. John Edwards was quoted in the same article. "I think the book manufacturing industry has seen more changes in the past three years than in the previous fifty," he told the trade magazine. "We've never seen such tremendous pressures and fundamental changes to our industry affecting all fronts: costs, margins, turnaround, content, formats, simply everything."
"For us, trade books were negatively affected," Edwards recalls. "Higher education was stable, with some erosion; K-12 was affected by schools' decline in revenue; sci/tech and medical segments were holding; our worldwide distribution with outside partners helped." Thanks to an alliance with four international printing partners, Edwards Brothers' U.S. customers could place one order and have their books printed and distributed around the world, saving shipping costs.
Looking ahead, the companies were well positioned to be competitive, but in different areas: Edwards Brothers with its network of digital printing and distribution sites, and Malloy with its advanced internal customer service technology. "Malloy's tools were at the front end of the supply chain, and ours at the back end," says Edwards. "We looked at what each could do best. We're not such huge egos that we can't admit that someone does it better."
In other ways, Edwards adds, "I've been amazed as we put this merger together how similar our companies are. Turns out I thought I knew them better than I did, when I discovered there was little customer overlap.
"It was a friendly agreement, not a hostile takeover," Edwards stresses. "It was just a merger; no money changed hands. We created a new company and all pledged stock; we agreed on terms and let the lawyers write it up."
Edwards Brothers has a slight majority ownership of the new company. "Edwards is the senior partner," Upton says, "but Malloy's senior management team was very welcoming--which was almost strange, but it gave us a big leg up on the culture issue.
"Being a family business helps. There was no private equity [funding] involved. We found we have similar values, though somewhat different practices; but working collaboratively when there are differences has gone well."
Upton is now vice president of operations at Edwards Brothers Malloy. Joe Upton is vice president of sales for the new company.
"After the merger we're in a stronger financial position," Edwards comments. The merger prompted fewer than a dozen layoffs, mostly senior management and sales positions that became redundant, but reduced costs through "combined health plans, economies from larger orders of paper and cardboard, one law firm, one accounting firm."
Bill Upton's worries about integrating the two companies have eased. "Now that we're into it, it's getting done and doesn't seem overwhelming," he says. And the combined company is a powerhouse in the short-run industry. Edwards Brothers Malloy has the largest fleet of Timsons presses in the country--powerful, quick-start machines so fast, says Upton, "that when you press the pedal to the metal they can print 7,000 books in an hour."
But the combined firm still faces the threats that prompted the merger in the first place. School sales remain uncertain, and trade and scholarly publishers are ordering shorter print runs.
In the past, publishers might print 2,000 copies of a "midlist" trade or scholarly title, figuring that even if they didn't sell immediately, all would eventually find buyers. But because of the mushrooming cost of warehousing, packaging, invoicing, and shipping, small orders for one to five copies have become unprofitable for traditional publishers. In response, they've shortened the life cycle of many newly published books to as little as a year.
At the same time, academic libraries are getting cannier about what they buy. According to an article last year in the Chronicle of Higher Education, 80 percent of the monographs in university collections circulate no more than three times, and up to 40 percent are never checked out at all. Libraries are responding with "patron-driven access" programs that allow users to browse publishers' catalogues online. If they attempt to download, print, or copy the contents, it triggers an automatic library purchase.
"On-demand" printing addresses all those problems. Print runs on the Timsons and other "offset" presses start in the low hundreds of books, but many publishers now want even fewer copies. Both Edwards and Malloy responded by investing in digital printing equipment, toner-based presses that are like supercharged copiers. The digital printers allow a publisher to test the demand for a new book and then quickly reprint and ship if sales develop.
Because digital printing makes it practical to print and bind as little as one copy at a time, Edwards Brothers Malloy can now serve authors who publish their books themselves, a newly respectable and growing market. For traditional publishers, it means that books never need to go out of print. College textbooks can be continually updated, and custom editions issued frequently.
Publishers also can save on delivery costs by printing close to the order's destination, using Edwards Brothers Malloy's five proprietary digital printing centers around the country. Six publishers, including Houghton Mifflin and the University of Chicago Press, have gone further, installing the company's digital printing facilities in their own warehouses.
Digital printing also has triggered an astonishing new development: an explosion of reprints. According to Publishers Weekly, a small group of newly established publishers offering books in the public domain cranked out eight times as many titles as the rest of the publishing industry in 2010. A single company, BiblioBazaar, offered 1,461,918 titles, all printed on demand when an order is placed.
It seems that the future of printed books lies in selling fewer copies of more titles, and Edwards Brothers Malloy is well positioned to serve that changing market. Nor is it wedded solely to print: the company also assists publishers in converting, formatting, and delivering their book content for electronic output.
According to marketing director Donna Coleman, they can take any kind of input--hard copy, .pdf file, application file, even image file--and convert it to e-book formats that can be read by devices including the NOOK, Sony eReader, Kindle, iPhone, or iPad. That's especially important as publishers choose to offer some titles primarily in digital formats. The University of Michigan Press, for example, plans to release all of the sixty-plus monographs (scholarly books on a single topic) that it publishes each year in electronic editions. Interim director Karen Hill says that the press will use digital printing to oblige readers who still want a physical copy to hold in their hands.
For now, though, printed books still rule. Last year, Edwards Brothers and Malloy Inc. printed 67 million offset books and another 5 million digitally, for a total of about 72 million books.
Four months after the merger John Edwards says, "There have been no surprises. Things are going well, and we're optimistic that it will work out." As a privately held company Edwards Brothers Malloy doesn't disclose financial results, but according to Crain's Detroit Business, the new company should have sales of about $115 million this year.
"We know about the 50 percent failure rate of M&As [mergers and acquisitions]," says John Edwards, laughing. "But nobody conquered anybody. We both utilize best practices, there's lots of communication--we send a merger update report to employees every two weeks."
"In 2009 it was negative and depressing, everyone felt we had to cut and slash, and competition was tough," Bill Upton says. "It was a tough business. Now, among our employees, there's an attitude of let's get going. They saw what was happening the past few years and are glad we are doing something. For me personally, I've been energized, and I wake every morning ready to go."
The employees had been understandably wary in the beginning. "It's been a process of getting to know one another," says Donna Coleman. "Everyone visited each other's facility. After the announcement people began to see the value.
"Now the employees are asking for a new logo," says Coleman. "We're keeping the Edwards Brothers Malloy name. And they want T-shirts!"
[Originally published in June, 2012.]