Episode 5: How to Grow in a Shrinking Industry with Kasey Cotulla
On Episode 5 of Durable Value, Joe talks w/ Kasey Cotulla, Owner of Delta Print Group in Sacramento, CA. Kasey talks about how he built one of the largest printing organizations in the US. Starting as a janitor, Kasey has decades of experience in the print industry and discusses his approach to investing.
Start Transcript
Kasey Cotulla:
I can certainly name off the top of my head the targets that I would have in my area, in my realm that I might target as opportunities. Now, the latest deal that we did, which we closed it just a year ago. We're actually coming up on a one year anniversary of acquiring the company that we've consolidated all operations into.
Kasey Cotulla:
But that was a vision knowing that that was a place that was perhaps underperforming in a really large facility. So I could envision that as I could add value, acquire the company that could do more, but also as a place to bring our other operations and become more powerful.
Narrator:
From Graceada Partners, this is Durable Value. An investors podcast where host Joe Muratore and Ryan Swehla demystify commercial real estate with safe sound, investment strategies to help you balance your portfolio.
Joe Muratore:
Kasey, thanks for being with us today. I've known you for a few years and it's wonderful to get to spend some time with you and to interview you. You've built an amazing business. I had to write it down there are so many companies, it's Delta Web Printing, River City Printers, Paul Baker Printing, Citric Communications, Metro Mailing Services. Tell us about your business. Tell us about this enterprise you've built.
Kasey Cotulla:
Well, thanks Joe. Thanks for inviting me. Well, I've been in printing all my life, so that's a wasted life if you will, but I've been in this industry from literally the ground up doing everything in a printing company since I was a teenager.
Kasey Cotulla:
So it's been an incremental growth, but I've really only been a business owner for the last dozen years. You were naming off all those companies, those have kind of accumulated over times. The first one Delta Web Printing, started with a second mortgage and a sweat equity deal at a company in West Sacramento. Then we grew that up a bit and bought out the founding partner with my partner, with a two and a half million dollar loan from the SBA, and a some foolish bank signed off on that and allowed these two shallow pocketed printers to take over this operation.
Kasey Cotulla:
So I had originally come into that company in 2008, as I like to say, April fool's day, 2008. Shrewd time to go into business. Grew that through the recession, then we acquired another company River City Printers and brought in another partner who bought that out with a slightly different deal, an asset purchase.
Kasey Cotulla:
Then we rolled up another company called Paul Baker Printing nearby in Roseville here in the Sacramento area, and bought that company. It had a good mix of equipment that complemented ours, the previous companies. Then we started Citric Communications a couple of years later as a digital spinoff.
Kasey Cotulla:
Then just last year we bought Metro Mail, which is a large company here in the Sacramento area that had more compliment to what we'd been doing in the printing side. This was more focused on mailing and in a large building.
Kasey Cotulla:
So we've been able to, over the last year, bring all of these different operations throughout the area into one facility. So, that's really been a long time coming. It's almost like a 10 or 12 year overnight success story to accumulate all these pieces into one operation. We've really just been putting the finishing touches on that in the last month and a half. So it's been a big, big lift to get to a point [crosstalk 00:04:00].
Joe Muratore:
Can you give us some stats? How many employees, how big gross revenue?
Kasey Cotulla:
Sure.
Joe Muratore:
I don't know what you want to share, but just put us in the ballpark of the size of your operation. I know you're a pretty humble guy. I've known you for a few years, I've toured your plant.
Kasey Cotulla:
You know I'll sandbag through all this is what you're saying? [crosstalk 00:04:15]. Yeah.
Joe Muratore:
I'm going to push it out of you. I've been to your plant. I'm really impressed.
Kasey Cotulla:
So we have about 175 employees.
Joe Muratore:
Yeah.
Kasey Cotulla:
We'll do close to $40 million in revenue this year. I would say in the Sacramento, and maybe even in Northern California, we'd be the... I like to say we're the biggest printer. I like to tell folks that I come in and interview them for perspective, whether in production or sales, that you'll all come and work for us eventually anyway. So you might as well come aboard now.
Kasey Cotulla:
So we've been able to roll up and grow in an industry that... It is contracting. I sometimes joke that owning big printing company is like, perhaps like owning all the Blockbuster videos stores in Modesto. There might be a ceiling, but we're all in.
Joe Muratore:
Have you considered going into the phone book business?
Kasey Cotulla:
No, we haven't quite... We've moved away from that perhaps. But there's still a lot of what we do. There's still a lot of printing going on. I kind of look at it that there's a bit of a moat around printing, my business. If Joe and Ryan sell to a family, sell a building and they make a few million dollars on the sale of some property, they're not thinking, "Well, now's my chance to go into printing," right?
Kasey Cotulla:
So there are not new people coming into my industry. So the people I'm competing against, the businesses that I'm competing against, those are the companies that will be here. I don't have to worry about new competitors coming in. So as long as I know my marketplace, I know what type of business I'm pursuing. I know who I'm competing against, it's a bit of a finite field that I'm operating in.
Kasey Cotulla:
So I know what our strengths are, I know what possible weaknesses we have, I know the strengths or weaknesses of something competitors. So, that gives me a clearer view of the field. You're in the commercial real estate business.
Joe Muratore:
I'm pretty sure I'm interviewing you.
Kasey Cotulla:
A lot of players in that space.
Joe Muratore:
Yeah. Yeah.
Kasey Cotulla:
So we benefit from perhaps being in a business that not a lot of people want to be in, but we have a lot of expertise and that's kind of our secret sauce. So being able to [crosstalk 00:06:20].
Joe Muratore:
So how do you print for? Not client names, but rather what sort of industries do you print for? How do you have any idea how many millions of pieces a year of things you print?
Kasey Cotulla:
We do millions of pieces. We print wide range. Some of this is because we've acquired these companies over time, each of them has a different specialty and a different mix of what they do. So I'm printing for Safeway and Albertsons. I'm printing for political campaigns. I'm printing for the state of California. I'm printing for health insurance companies. I'm printing for hearing aid marketing companies. It's a wide range.
Kasey Cotulla:
Through the Coronavirus impact, that's been a strength of ours while marketing related printing has really frozen up. We've been able to have enough institutional clients to keep all of our people working, keep our operations going, and take advantage of some slow down period to consolidate, and strengthen, and build our infrastructure even greater. So the plans that we had made that we were going to execute over the next year, we've been able to accelerate them into a three month window that we maybe wouldn't have done if things had kind of been a bit more normal.
Kasey Cotulla:
So some of that is having the flexibility to take advantage enough of a personal and a corporate balance sheet that we're not heavily leveraged. So we're able to take advantage of things that maybe other people in my industry aren't quite able to do, or aren't willing to do.
Kasey Cotulla:
So that's kind of been our advantage is a bit of aggressiveness, but not foolishly able to approach opportunities. That has been a bit of our success. I think that will continue for us. Ideally, but again, I'm just a humble forklift driver.
Narrator:
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Joe Muratore:
This is a show about investors and investing, and that means it's a show about people. So, let's get into Kasey as the person for a little bit here. One thing I love about your story, and I've loved in getting to know you is, you're born Galt, you often say I'm a humble forklift driver, and that's, that's a key part of your story.
Joe Muratore:
You literally started as a forklift driver in a printing company, and rose to president, and then Rose to owner, and then began this. Reflect, go back to the kid in Galt for a minute and tell us about that kid and tell us about which part of that helped build you into who you are today.
Kasey Cotulla:
Well, It's certainly not the path I would have predicted, and it's a bit of circumstance and opportunity coming together over 35 years. So, I like to say, "I'm a career incrementalist." So I actually started as a janitor, not even a forklift, I aspired to be a forklift driver. So I started as a janitor sweeping floors, and then I moved up through the ranks in a printing company from being a teenager out of high school and moved through different roles.
Kasey Cotulla:
Eventually I became... Spent a lot of time in customer service. So dealing with customers, dealing with internal folks, dealing with creatives on the ad agency side, to dealing with the $10 an hour person that's boxing and shrink wrapping off the end of a press. So that helped contribute to working with a lot of different people, successfully. Communicating with a lot of different people and recognizing that all these people are getting an organization, or an enterprise to be successful.
Kasey Cotulla:
So I think there's some value to starting from the bottom up, if you will, but it's the long path. I prefer maybe an accelerated opportunity along the way, but it's worked out. So as I've gone along and eventually I was a supervisor, and then a manager, then eventually being, as you said, an executive and running the company, then ultimately buying in and being a business owner, all those have kind of come along with every few years being able to take an opportunity along the way.
Kasey Cotulla:
Ultimately getting to, if you will, the business investor site where I get to sit with Joe Muratore and discuss this stuff that is... It's kind of heady, right? Getting here has been a long process, but if all that time spent in printing, all that time spent in my industry, you acquire the knowledge and you have to allow yourself to put yourself in a position where you can take that knowledge, take that experience, and add value.
Kasey Cotulla:
So if you talk about an investor, how does an investor create value? They have to bring value to an enterprise. So you have the ability to take properties and see what the potential is, how to incorporate your vision for the potential for a property, and then work, knowing enough to know who could be your perspective tenants, and how you're going to change the nature of a seasoned property, a mature piece of real estate to attract new tenants and provide value for your investors. That's I believe what you do.
Kasey Cotulla:
For me, I'm taking my print experience, then later business and management experience, and then that's where ultimately to be a business owner, I add value. So then bringing in other roll-ups, other companies into our mix, those add value to that enterprise. I add value to that enterprise.
Joe Muratore:
So tell us about that process. I often think of things as a Ferris wheel and that we see a building opportunity, we make contact, there's an interaction, but there's never a deal right away. So it goes on the Ferris wheel and it slowly works its way around. The phone may ring from time to time and there's discussions, but maybe that analogy works for me. But tell me about your business, how do you... I mean, you've done how many acquisitions so far?
Kasey Cotulla:
We've done about five acquisitions.
Joe Muratore:
So you've done five acquisitions so far.
Kasey Cotulla:
Yeah, and built some others from scratch.
Joe Muratore:
So the next five, how do you look for these opportunities? What's that process like for you and how do you know when something's the right fit?
Kasey Cotulla:
Well, it is the advantage of knowing your industry. So that's not something to take for granted. So having a deep knowledge of where you are, where your industry is, and where there could be opportunities. I can certainly name off the top of my head the targets that I would have in my area, in my realm that I might target as opportunities.
Kasey Cotulla:
Now, the latest deal that we did, which is we closed it just a year ago. We're actually coming up on a one year anniversary of acquiring the company that we have consolidated all operations into. But that was a vision, knowing that that was a place that was perhaps underperforming in a really large facility. So I could envision that as I could add value, acquire the company that could do more, but also as a place to bring our other operations and become more powerful.
Kasey Cotulla:
So you talked about the Ferris Wheel, how do you get there? It is a conversation. It doesn't start with a phone call and a deal, you're working on the letter of intent within the next 30 days. It's a process. Some, folks are ready to sell and their books are set up easily, they are organized, they want to sell, they know they want to exit.
Kasey Cotulla:
Some you're approaching them and they haven't really thought about it purely enough to have their business organized. Built to sell, that's a phrase we hear in the EO environment, right? Built to sell. Some companies are built to sell, they're ready to go, they just need to determine what's the best deal to get what they need out of it and what you need to make the deal work. The best way to approach each one is to approach each one differently.
Kasey Cotulla:
So in my case, I'm in a business where now I've been at it long enough we have a successful track record that if I approach the owner of a printing or a mailing company, we have a track record of success. So that if we enter into a deal where we put some money down upfront, but we're making a seven, eight, 10 year deal down the road, I have enough track record to know that that guy is pretty assured I'm going to end up paying him in year 10. He doesn't have to worry about it, right?
Joe Muratore:
Yeah.
Kasey Cotulla:
We're going to be here. I've got enough success to build on, to make those make sense. So the deals get easier once you've had a track record of [inaudible 00:15:12]. Not any different than anyone joking to say the first million's the hardest, that is the truth.
Kasey Cotulla:
Once you've done it, it's easier to... You have credibility to get a deal done, it's easier for you perhaps to attract investors because you have a track record of showing your success.
Joe Muratore:
Yeah.
Kasey Cotulla:
I have a track record of buying companies and then building them up and paying the owner over time because we've been able to be very successful of not putting a lot of personal guarantees. So we're not jeopardizing one deal with an over leverage, or a position where if one company were to collapse or not make it, it doesn't pull down the rest of them. So there's a lot of work done through the process of buying a company from someone that's built it up from scratch. That's their life. In my business, they're selling you, their life's work there.
Joe Muratore:
Yeah.
Kasey Cotulla:
They've built this. This is their exit plan. So you need to be respectful of that and come up with a plan that's going to work for them in the near term, as well as the long term.
Kasey Cotulla:
We have enough of a track record. I have enough of a track record and credibility in industry that I've been at since I was a teenager in this same area, in my geography, that it starts to make sense. Then the efficiency starts to come as we roll up operations that can compliment each other.
Kasey Cotulla:
We're at a point where we're really, even in a tough environment, I say a tough business, but every business is tough, right? Every business has challenges. So anyone that says there aren't any easy businesses. So it just happens to be, these are the challenges of printing. It's a bit of a, it's a contracting environment, but there's still opportunities.
Joe Muratore:
When you say it's contracting, on the demand side I guess?
Kasey Cotulla:
Yeah.
Joe Muratore:
How much is it contracting per year? Does it go to zero? Or is this a steady sort of thing?
Kasey Cotulla:
Hopefully not. I hope not. No, I like to say I'm not training my 18 year old son to become a printer. So I don't need it to last forever, but print will continue to be part of marketing, part of communications, for quite a while, and I'll be there.
Kasey Cotulla:
We can continue to adjust our companies, and some of the focus, and build on our relationships. But I'm really not... We're pointedly not building a company and a collection of companies into an enterprise that we're going to sell to somebody. We're doing this for a sustainable opera- and that gives us some flexibility as well. We can make investments for the longterm. I can make things... This may not pay back for three more years. In an equipment mover, or a business consolidation because I don't need to cash this out.
Kasey Cotulla:
I'm not planning to cash this out right away. This is not something need to walk away from we're building it in a successful manner so we can be here for a long time. You rattled off all those companies, we're actually putting it under one company now called Delta Print Group, which has a bit of a branding mechanism, but eventually the companies will roll up into that strike. But each one is different. We've got to two C-Corps, an S-Corp, and few LLC's, a lot of mix of complexity in there. Again, I'm just a humble forklift driver from golf. So...
Joe Muratore:
You're a trained killer man.
Kasey Cotulla:
Yeah, but we can be a predator, and perhaps if people don't see us coming there, that could be an advantage as well.
Joe Muratore:
I mean that in the kindest way.
Kasey Cotulla:
That's okay.
Joe Muratore:
I respect that about you.
Kasey Cotulla:
Yeah.
Joe Muratore:
So, I felt a kinship with you for a long time. I think of you as a contrarian investor. Often we look at where the herd is going on buildings, and we go the opposite way.
Kasey Cotulla:
Right.
Joe Muratore:
We figure if everyone's thinking it's time to buy industrial. Well, let's look at multifamily, or let's even look at retail, the right pieces of retail. But I see with your business, everyone heads towards digital marketing, everyone heads towards anything with the word digital in it.
Kasey Cotulla:
Yeah.
Joe Muratore:
And Kasey says, "Okay, I'll just buy all the printing companies because they cashflow and I can build a scalable enterprise around this."
Kasey Cotulla:
It is always about the deal. So one of the advantages in print, the multiples are not crazy. So they're manageable and I'm going to buy a business that's going to pay for itself. I'm not going to dump a huge amount of money into it, and then fingers crossed that in the next five years, I get my money back. We're setting it up, there will be an initial investment, but it's got to contribute. It's got to contribute back to paying for itself right away.
Kasey Cotulla:
If you know the business well enough, and you can recognize how it might fit, in my case, it might fit into the realm of what we're already offering. Then it's complimented. I can see the value comes along because we're able to roll it up into the environment, the printing environment, in our case. It's an additive part, because we understand it pretty thoroughly, very thoroughly.
Kasey Cotulla:
I will joke about that, but I'll eventually tell my mom what I do for a living, because now that I'm a printer. But I don't brag about it. It's a business, but it is a being a manufacturer in California. That's really what we are. It's a challenge.
Kasey Cotulla:
So it's not the easiest thing to be a manufacturer in an environment that doesn't value, or make that a number one priority. But again, that means there's fewer people attracted to it. Just like you said, as a contrarian part. Being in business and having a bunch of employees in California, that's a challenge.
Joe Muratore:
Yeah.
Kasey Cotulla:
But it's okay. It means that there's fewer people willing to take on that challenge.
Joe Muratore:
We live in a sort of Black Swan Age I recently read, which is like, this event just happened and things changed. Has there been any shift to your industry, or how you view the world, or how you're investing in light of coronavirus?
Kasey Cotulla:
It certainly brings home that you can't predict what might happen. We do a lot of pieces, we do a lot of printing for the health insurance industry. A lot of that is driven by regulatory requirements. The reality is that I recognize that with the stroke of a pen, the governor, or regulator, or something could change dramatically where some of our business, or some of our incomes comes from, some of our revenue.
Kasey Cotulla:
In the same way that the Coronavirus affected, froze up anything marketing related. So we print for casinos, that stopped. We do... All of that went away, but then we're printing... Because of the mix of our client base I'm printing COVID notices for the legislature. It won't be surprising, but most legislators are anti-Coronavirus. So they've taken a strong stance against COVID-19. So they just want to be able to mail that notice out to their constituents [crosstalk 00:21:47].
Joe Muratore:
Who's pro-Coronvirus [inaudible 00:21:49].
Kasey Cotulla:
I know. So, they're taking a strong [crosstalk 00:21:51].
Joe Muratore:
You might decide to be pro-Coronavirus.
Kasey Cotulla:
So the contrarian side is just reality of my business, right?
Joe Muratore:
Yeah.
Kasey Cotulla:
So maybe that I can say I'm contrarian, but by circumstance, I'm in a business that be considered contrarian.
Joe Muratore:
I'll lead with one last question, which is, who have been some of your heroes over the years? Do you have any heroes in this business? Is there anyone... These might've been people you worked with, these might've been people you read, I don't know, but who in the last 35 years has altered the way you thought or inspired you to a different outcome?
Kasey Cotulla:
We were just talking about that among family, my brother. I grew up, kind of a bit of a broken family. So my brothers and I lived with different family members. I spent most of my youth, my young life working on my grandfather's ranch. He had a small ranch near Galt.
Kasey Cotulla:
So I like to say, you had to do chores before the bus came at 7:00 AM, and you had to be out there or it drove away and left you, and you didn't get to school without some work. So there was always something to be done in a ranch. If you look at a small rancher or farmer, that's a small business. There's always something to do and always something that needs to be done.
Kasey Cotulla:
That you don't recognize, perhaps I take that for granted that that's the environment I was growing up in, but there was always something to be done. So that I think is what probably propels, even if I have, if I'm undereducated for where I've overachieved relative to education, it is recognizing that there's always something to be done and that's been a benefit for us. So if I looked at, probably say my grandfather, just from an example of just continuing to keep working, and keep working, and head down and you can outwork most people. Everyone has the ability to outwork most of their competitors, if you will.
Joe Muratore:
Great. Kasey, thank you for your time and your inspiration.
Kasey Cotulla:
All right.
Joe Muratore:
I look forward to knowing you for many years to come and watching the trajectory of your business and your life. So thank you.
Kasey Cotulla:
All right, thanks.
Narrator:
Thank you for listening to Durable Value. An investor's podcast, where we demystify commercial real estate with safe sound, investment strategies, to help you balance your portfolio. If you enjoyed this podcast, be sure to rate it on iTunes or wherever you get your podcasts. To learn more, graceadapartners.com, where you'll find more information, investors tools, case studies, and more.
Narrator:
This podcast is hosted by Joe Muratore and Ryan Swehla. It's produced, edited, and mixed by Melodic, with intro music by Anne Post. Thanks again for listening and we'll see you next time.