Mismatch

Old-line printer Harty Press made a strategically smart acquisition, positioning itself to compete in what had become a high-tech marketplace. But it bungled the people side of the merger -- and is still paying for the mistake

Harty Press operates out of a complex of one-story cinder-block buildings at the corner of James and River Streets in the industrial underbelly of New Haven. Walk down River Street and you pass aging brick factories with gritty names -- National Pipe and Bending, New Haven Grinding -- fenced off from the street by chain link and razor wire. At the end of the block stands an abandoned furniture warehouse, its concrete loading bays crumbling, its every window blown out.

Amid the chaos of the neighborhood, Harty Press, a commercial printer of everything from local advertising to slick annual reports, has stood steadfast since its founding, in 1911. Inside the plant the air is ripe with the smell of ink and alive with the hum of presses. Harty's CEO is George R. Platt, age 40, who grew up in the company, first working there summers, and then moving in full-time after college to work alongside his father, George E. Platt. Two younger brothers, Kevin, now 36, and Michael, 33, followed, learning the trade from the ground up.

George Platt the elder started his own business, George E. Platt Co., in 1958 and took over Harty Press in 1972. He died in 1983, and when his eldest son, George, inherited the mantle, Harty was an unexciting business with 20 employees and $1 million in sales. The new CEO had grander visions. "I was always looking to grow the business," he recalls. "I read the trade press a lot. I was always thinking, 'If we're at $1 million in sales, then how do we get to $2 million?' " Platt tapped into the liberal lending climate of the 1980s, at times leveraging the business as high as $9 in debt for every $1 on the balance sheet. He tempered the risk by beefing up quality and customer service. He sniffed out higher-margin niche markets.

Last year Harty, which now employs more than 100 people, saw sales exceed $12 million, with a gross profit of 25% and pretax margins of more than 5%. Those are impressive numbers in a business in which, as Platt puts it, "if you can make 8% pretax, you're God." Printing requires a heavy capital investment, which devours margins. Moreover, Harty ground out its results in a punishing New England economy, an economy that was especially brutal in recession-racked Connecticut, where declining defense spending has taken a heavy toll.

And yet Harty as a hardy perennial is also part illusion. This is a company that has taken some knocks. Although it remains a profitable and growing business, its performance in the past three years has been fitful. Sales hit $10 million in 1990 but then were flat in 1991; the company laid off 15% of its work force. Revenues then rose to $12.3 million in 1992 before plateauing again last year.

Harty's shifting fortunes are due in large part to a single defining event, a major strategic acquisition it made in July 1991. Platt knew he had to make it to keep his company ahead of the curve and ultimately ensure its future growth. But that acquisition was made as if numbers mattered a lot and people hardly at all. And Harty Press, since then thrown into turmoil, has yet to fully recover.

When people think of growing pains in business, they typically think of internal growth, and they typically accept dislocation as a product of that growth. Conversely, when people think of growth by acquisition, they assume the merger will be relatively automatic and painless. Harry Dulak, a job scheduler at Harty, notes, "Anytime you read about a merger or acquisition in the newspaper, people say, 'Wow, these two companies are going to create a dynasty.' But the human aspect can be a real killer when you take two cultures and try to put them together."

Harty's acquisition -- as necessary as it was -- didn't kill the company, but it sure wounded it. Not only did the event rouse a culture clash between Harty and the company it acquired, Pre-Press Graphics Inc., but it also brought tensions among the Harty management team to the surface. It sowed confusion and called into question managers' motives and their intentions toward employees.

When George Platt bought Pre-Press Graphics, he never dreamed he'd pay so steep a price.

Harty Press's acquisition from hell had its beginnings back in the late 1980s, when George Platt began to consider the rapid technological changes overtaking his industry. Printing was moving quickly from the world of film, type, and light to the computer-driven, digitized world of the desktop. Platt recalls, "I kept reading about the oncoming digital world. I knew we had to do something when more and more clients started walking in the door with disks in their hands." Platt knew that if he didn't move, the business would pass him by, and Harty would founder.

In late 1990 Platt hired a specialist to computerize Harty's prepress function (the preliminary phase of the printing process in which copy gets converted to film). But Platt soon learned that building digital desktop capability from scratch for a company Harty's size would cost as much as $1 million -- and still be problematic. "The learning curve on this would be steep. I wanted to land on my feet." He decided it would be less risky to acquire the capability than to grow it.

Through industry contacts, Platt met Don Prohaski in February 1991. Prohaski had founded Pre-Press Graphics, based in nearby Branford, Conn., back in 1979, and he had been one of the first people in the state to aggressively use advanced desktop technology, principally high-end Macintosh computers. To Platt, Pre-Press seemed an inviting target. It had already done much of the costly research-and-development work Platt knew he would have to undertake. Moreover, because Prohaski was spending a lot of time, energy, and money on technology development, his business had begun to plateau at around $1.5 million in sales. He was looking for a buyer. Harty Press bought Pre-Press Graphics in July 1991 for $500,000 and the assumption of up to $100,000 in liabilities. The deal looked good to Platt -- Prohaski acted as the banker, taking back a note at market rates. Prohaski stayed on with the merged company, and he was offered a cut of future profits.