The strategy: Invest in the faster-growing, higher-margin business and divest slower-growth and lower-margin ones, even if that means selling legacy businesses.
Not an easy task, even if executives, like those at Merrill Corp., know it must be done. Yet Merrill, which made its name specializing in printing of regulatory and other corporate paperwork, is now centered on a digital suite of data services for the mergers and acquisition industry.
The culmination of the change will be when the longtime St. Paul-based company moves to a new corporate headquarters next spring in downtown Minneapolis.
Chief Financial Officer Tom Donnelly has worked in his fair share of turnaround and growth situations during his career, but said it’s a whole lot more fun to be working in a growth environment.
Merrill was a publicly traded company for 13 years before going private in a 1999 deal worth about $500 million. It floated another IPO in 2007 when revenue was $790 million but eventually withdrew that offering.
Those times are ancient history to the current management group led by Rusty Wiley, a former IBM executive, who joined the company as CEO in 2014. Wiley stocked his management team with software executives including Donnelly, who has a long history with local technology and software companies including OptiMine Software Inc., Digital River and Net Perceptions.
Merrill’s central product, the DatasiteOne software, has been around since 2002, but it took a lot of reinvention to make it the centerpiece of a growing venture. The product allows both sides of an M&A transaction to electronically share documents in a secure setting.
Since Wiley took over, Merrill has divested nine business lines. The strategy was a risk. The businesses brought in the majority of revenue, even if they were not growing as fast as DatasiteOne.
One of the largest divestitures was a year ago to the Japanese business Toppan Printing Co. Terms of the deal were not disclosed, but it allowed a big investment in the software.
“The investment was made in the growth engine of the company,” Donnelly said.
The DatasiteOne business has had good growth rates, Donnelly said. Since 2009, it has had a compounded annual growth rate of 14% and the growth rate accelerated to 25% with the launch of a new platform last March.
Revenue will approach $300 million this year.
Even though it’s growing, Merrill is still a leaner company. Several years ago, the company had 3,700 employees. Now it employs 718 — 220 at its longtime St. Paul headquarters and 150 product personnel at a North Loop location, plus others across the country.
But the fact that the largest shareholders, which include private-investment firms Bain Capital and Davidson Kempner, were willing to support the strategy to rely on DatasiteOne and invest in the strategy helped convince Donnelly and other senior executives with software experience to join the company.
“Its hard to be in a software company that doesn’t innovate because somebody else is innovating around you,” Donnelly said. “People want to get on the planes that are taking on altitude.”
The company hopes to build on the revitalizing energy of the turnaround with its move to new space. Next spring, employees from both campuses will move into the fifth and sixth floors of Baker Center in downtown Minneapolis, which underwent a multimillion-dollar renovation in 2017.
“Minneapolis has proven over the last few years to be the place for growing progressive companies like Merrill, and Baker Center provides an edgy main location,” said Reed Christianson, a principal with the Minneapolis office of Transwestern, which manages and leases the Baker Center.
The new, more modern space will be a critical element in Merrill’s ability to attract new tech talent, Donnelly said.
The company will have room to expand to as many as 460 employees in the Baker Center and has options to acquire more space.
Donnelly said Merrill had a strength in customer service, key to its pivot, and also leading product technology and sales execution.
Those strengths transferred from the print companies to software, allowing the company to take market share in the virtual data room space from IntraLinks and other competitors in the industry.
Jamie Snelson, a shareholder at Minneapolis law firm Fredrikson & Byron and co-chair of its mergers-and-acquisition practice, has been doing M&A deals since the late 1990s and remembers the frustrations of rooms piled high with paper documents and relying on questionable copy machines — whether they were at the seller’s office, rented hotel rooms or other law firms.
So Snelson said he welcomed the advent of virtual data rooms from Merrill and others. “All of this is intended to make the diligence process faster, more efficient and more effective,” Snelson said.
Snelson also remembers Merrill’s excellent customer service from his days as a young lawyer in reviewing regulated forms such as proxies and other financial filings while at the printers. He said that customer service has not changed.
“They are constantly trying to improve their product and how they can add new features to enhance the effectiveness and efficiency of the product they already have,” he said.