Hyding Out

Most Owners of Print and Graphics Communications Businesses Who Are Selling Their Company Do So Because They "Have to" , Not Because They "Want to"

 

Most owners of print and graphics communications businesses who are selling their business are doing so BECAUSE THEY HAVE TO, not because they WANT TO-----this was one take away from NAPL Management Briefing on Growth Strategies for 2012.

My NAPL colleagues Tim Fischer, Joe Truncale, Mike Philie and I discussed significant trends affecting members-clients, particularly in the M&A arena. The "invite-only" event attracted approximately 25 attendees yesterday for the half-day workshop.

Although most M&A transactions continue to involve at least one "treading water" or "going out of business" company, NAPL expects to see rising interest in "healthy company" exit scenarios during 2012-2013. Owners of "leading companies" can be expected to put their toes in the water to explore options that include private equity, ESOP, and strategic sale. In other words, potential sellers would include those who "want to sell" and not just those who "have to sell".

 

 

Are you a candidate for private equity investment?

Warren Buffet famously states in Berkshire’s annual report that all he needs is five minutes before giving a yes or no on whether he’s interested in pursuing a transaction.  Not to discredit Mr. Buffet(whose patience and track record are another story), but his quick judgment is also shared by many private equity pros. 

via napl.typepad.com

Site Visit to Printing Company Facility: 3 Things to Look for From an M&A Perspective

The all-important site visit to a prospective M&A candidate is frought with both challenges and opportunities to make a favorable first impression. What should an owner of a printing and graphics company look for when getting the proverbial "tour" of the other company's facility?

Here are 3 things to look for from an M&A perspective regardless of whether you are an acquirer or considering a transition from ownership:

Employee Connectivity: Are employees eyeing the owner/senior manager with suspicion, as would be the case in a shop where there is distrust and morale problems? Or, do employees seem engaged and open to share "what they do" with the visitor? The leading companies always seem to have a facility where it feels natural for employees to interact with guests without it being a big inconvenience or somehow viewed as a threat. Sandy Alexander (Clifton, NJ) is a good example of a positive and open culture. As part of the NAPL M&A Growth by Acquisition outreach process, my colleagues Tim Fischer, Laura Shoemaker, Kathleen Appleton and I recently visited this leading company, and we came away impressed at how forthcoming and friendly were the employees without any proding from our host CEO. L+L Printers (Carlsbad, CA) is another example of a successful company with excellent employee connectivity.

Infrastructure Cleanliness and Organization: The leading companies tend to have clean and organized infrastructure that is conducive to efficiency, profitability, and a positive culture.  Tim Fischer and I recently visited a potential M&A candidate on behalf of an NAPL client, and it took us less than a minute to see that the "merger" would never work because the shop we visited was cluttered and dated, while our client's facility is meticulous and clean. This discrepency raised an insurmountable cultural obstacle than had nothing to do with "price" and "structure" of the M&A transaction; rather, the chemistry was insufficient to suggest a high likelihood of success for the combined operation.

Passion and Viability: It never fails that an experienced observer can ascertain whether the company is "healthy" or "unhealthy" just from the walk-through. I've been in hundreds of printing facilities and rarely do I get it wrong. It's all about passion and viability, something that you feel and sense when it's there and something you know is missing when it is. This is not about machines running; rather, it's a vibe, an intuitive perception that tells you everything you want to know about the ownership. Heeter Direct (Canonsburg, PA), JS McCarthy (Augusta, ME), and EU Services (Rockville, MD) are examples of leading companies where a visitor senses passion and viability from the ownership on down.

 

 

 

7 Tips for Finding M&A Opportunities in the Printing and Graphics Industry

1. Start with the obvious and don't waste time on longshots
2. Tap into your contacts and initiate informal get-togethers
3. Engage advisors for proactive outreach campaign
4. React to leads from trusted suppliers who know you
   
5. Carefully screen business brokers solicitation letters and disregard unless specific opportunity is disclosed
   
6. Use internet business-for-sale sites only on a limited basis
   
7. Repetition is key, as M&A is an on-going process

 

Shamless sales pitch: don't hesitate to contact my NAPL colleague Kathleen Appleton for customized research to find M&A candidates for your strategic transaction (kappleton@napl.org)

 

 

 

 

"How Many Deals Have You Done?" --- Wrong Question To Ask Potential M&A Advisor

I am sometimes asked, “How many deals have you done?" The question misses the mark in what to ask in evaluating my team and I as a professional resource.

Satisfied clients are what counts, not how many deals close. A successful outcome in working with a client does not require a closed transaction.

A recent potential M&A transaction between Client X and TargetCo is a case in point. We contacted TargetCo through our outreach process, serving as the Client's strategic M&A advisor. Both companies were initially interested. Yesterday my NAPL colleague Tim Fischer and I concluded the deal wouldn’t make sense because the cultures were not compatible.

This e mail from Client X says it all: " Wow - thanks for your tell it like it is recommendation. Actually you confirmed what we were concerned about, but the process had not proceeded to a point to confirm it. You now have confirmed it. It also acknowledges that we have engaged you to not only look into mergers that could work, but also what mergers may not or will not work."

So, rather than ask "how many deals have you done", a more effective approach is to evaluate a potential M&A advisor by speaking with references, clients, and others who were in your shoes at an earlier time. 

 

Oh, and if you want to know how we knew the cutures were not compatible after visiting each company for a few hours, just drop me an email asking and I'll reply.  jhyde@napl.org

 

Merger and Acquisition Update Heading Into Q4 2011

The following is an article that appeared under my by-line on My Print Resource.com, October 11, 2011:

Merger and acquisition (M&A) activity for companies in the graphic communications industry continues to flourish as we head into the final quarter of 2011. Members of our National Association for Printing Leadership (NAPL) Business Advisory Team believe the challenge owners face in utilizing existing equipment, the need to drive savings and increase capabilities through consolidation savings and the overall long-term trend of industry consolidation are all contributing to strong M&A activity nationwide.

One of the often repeated myths about mergers and acquisitions is that they are only for big public companies. In reality, an estimated 95 percent of the current M&A activity taking place in the US printing industry involves smaller, often family-owned, businesses. Smaller printing companies that are in trouble often cannot sell the entire business as a going concern and generally will benefit more from selling it in pieces versus as a whole.

These companies, in many cases, find that their real and most saleable asset is not their physical plant, but their customer base. With printing company equipment valuations continuing to decline because of surplus supply, the best opportunity for a company to maximize shareholder value may be to liquidate its plant and join forces with another company that has scale and name recognition in the marketplace.

Another M&A myth is that there are more sellers than buyers. In actuality, M&A is an effective growth strategy for many companies today. This may be a challenging time for our industry as a whole, but it is also a time of opportunity for those moving strategically, and a small group of successful companies are doing very well, despite an overall industry decline.

For companies that are enjoying success in 2011, a redistribution of existing sales is driving their expansion. Industry leading companies, which comprise about five to 10 percent of our industry, are growing, and they’re doing so by taking market share from the 90-95 percent of industry companies that are failing or just treading water. In many cases, they are accruing that market share through acquisitions or business consolidations.

Companies that may have an interest in M&A are sometimes put off by some other M&A “myths,” among them: most valuations use an EBITDA method, financing for M&A is a huge impediment, or companies engaging in M&A may lose a third of their customers. It’s unfortunate if such fears are preventing companies from investigating M&A possibilities because none of these myths are true.

Happily, such unfounded concerns do not seem to be slowing down M&A activity these days. The response rates to our M&A outreach efforts, for example, make it very apparent to NAPL that the stigma that was once attached to owners meeting to discuss mergers and acquisitions continues to lessen as companies understand the need for consolidation.

NAPL is recognized as a trusted and objective resource for confidential M&A services, with contacts that are unique within the printing industry. It offers company executives advisory services to help them build long-term shareholder value through strategic M&A activities. Services also include helping companies with strategic sale of a business, strategic partner assessment/procurement, acquisition of general intangibles and post-merger integration services.

---from My Print Resource.com, October 11, 2011

Ten Considerations for Effective Post Merger Communications

The most critical success factor in post merger integration is communications.

The key is for owners of print and graphic communications companies who are about to consummate a merger, acquistiion, joint venture, or other strategic transaction to anticipate the needs and wants of the major constituents: customers, creditors, and employees.

To help plan effective post-merger communications, here are Ten Considerations (issues/concerns) that should be weighed in developing "talking points" and outputs such as press releases and customer letters: 

1. Successor liability associated with "mergers" and certain acquisitions;
2. Customer receptiveness so as to minimize attrition related to the transaction;
3. Impact on employees who are likely to be nervous in the immediate aftermath of the announcement;
4. Suppliers who may fear being out in the cold on payment for old invoices;
5. Bank loan officers who seek to manage compliance and process;
6. Landlords who aren't happy about possibly having a vacancy;
7. Family members who feel a sense of loss now that the business is no longer independent;
8. Partners who need to be "on the same page" in facing questions on the fly during the critical 72 hours post closing
9. Union representatives who may not share the owners' enthusiasm for consolidation savings
10. Leasing company representatives who simply do not understand or care about the wonderful M&A transaction but simply want to confirm that the next months lease payment will be forthcoming

NAPL has a wealth of insight on all aspects of Post Merger Integration including Communications. Do not hesitate to contact me for examples, insights, and advice so that you are more likely to succeed in your critical M&A endeavor.

 

Top 10 Reasons Small Business Fail --- Perspective from Outside the Printing Industry

I usually like hydingout to reflect my own voice, but today I'm repurposing a blog that appeared in the January 5, 2011 edition of the New York Times, written by Jay Goltz, a Chicago-area business owner.  He really nails it, and I would encourage owners of print and graphic communications companies to sit down and honestly assess how they rank in each of the ten areas. These words of wisdom from outside our industry are highly relevant, in my view. Oh, and don't be put off by the phrase "Small Business". The SBA defines "small business" as manufacturing companies with under 500 employees. I know all of my clients are surely under 500 employees, so dont' sweat the tag "small business".

Here is Mr. Goltz's NY Times blog in its entirety and without edit:

 

One of the least understood aspects of entrepreneurship is why small businesses fail, and there’s a simple reason for the confusion: Most of the evidence comes from the entrepreneurs themselves.

I have had a close-up view of numerous business failures —
including a few start-ups of my own. And from my observation, the reasons for failure cited by the owners are frequently off point, which kind of makes sense when you think about it. If the owners really knew what they were doing wrong, they might have been able to fix the problem. Often, it’s simply a matter of denial or of not knowing what you don’t know.

In many cases, the customers — or, I should say, ex-customers — have a better understanding than the owners of what wasn’t working. The usual suspects that the owners tend to blame are the bank, the government or the idiot partner. Rarely does the owner’s finger point at the owner. Of course, there are cases where something out of the owner’s control has gone terribly wrong, but I have found those instances to be in the minority. What follows, based on my own experiences and observations, are the top 10 reasons small businesses fail. The list is not pretty, it is not simple, and it does not contain any of those usual suspects (although they might come in at Nos. 11, 12 and 13).

1. The math just doesn’t work. There is not enough demand for the product or service at a price that will produce a profit for the company. This, for example, would include a start-up trying to compete against Best Buy and its economies of scale.

2. Owners who cannot get out of their own way. They may be stubborn, risk averse, conflict averse — meaning they need to be liked by everyone (even employees and vendors who can’t do their jobs). They may be perfectionist, greedy, self-righteous, paranoid, indignant or insecure. You get the idea. Sometimes, you can even tell these owners the problem, and they will recognize that you are right — but continue to make the same mistakes over and over.

3. Out-of-control growth. This one might be the saddest of all reasons for failure — a successful business that is ruined by over-expansion. This would include moving into markets that are not as profitable, experiencing growing pains that damage the business, or borrowing too much money in an attempt to keep growth at a particular rate. Sometimes less is more.

4. Poor accounting. You cannot be in control of a business if you don’t know what is going on. With bad numbers, or no numbers, a company is flying blind, and it happens all of the time. Why? For one thing, it is a common — and disastrous — misconception that an outside accounting firm hired primarily to do the taxes will keep watch over the business. In reality, that is the job of the chief financial officer, one of the many hats an entrepreneur has to wear until a real one is hired.

5. Lack of a cash cushion. If we have learned anything from this recession (I know it’s “over” but my customers don’t seem to have gotten the memo), it’s that business is cyclical and that bad things can and will happen over time — the loss of an important customer or critical employee, the arrival of a new competitor, the filing of a lawsuit. These things can all stress the finances of a company. If that company is already out of cash (and borrowing potential), it may not be able to recover.

6. Operational mediocrity. I have never met a business owner who described his or her operation as mediocre. But we can’t all be above average. Repeat and referral business is critical for most businesses, as is some degree of marketing (depending on the business).

7. Operational inefficiencies. Paying too much for rent, labor, and materials. Now more than ever, the lean companies are at an advantage. Not having the tenacity or stomach to negotiate terms that are reflective of today’s economy may leave a company uncompetitive.

8. Dysfunctional management. Lack of focus, vision, planning, standards and everything else that goes into good management. Throw fighting partners or unhappy relatives into the mix and you have a disaster.

9. The lack of a succession plan. We’re talking nepotism, power struggles, significant players being replaced by people who are in over their heads — all reasons many family businesses do not make it to the next generation.

10. A declining market. Book stores, music stores, printing businesses and many others are dealing with changes in technology, consumer demand, and competition from huge companies with more buying power and advertising dollars.

In life, you may have forgiving friends and relatives, but entrepreneurship is rarely forgiving. Eventually, everything shows up in the soup. If people don’t like the soup, employees stop working for you, and customers stop doing business with you. And that is why businesses fail.

Thanks for NY Times and Mr. Goltz, this is a terrific assessment of why small business fails.

Looking for Consolidation Savings Without Merger? Try a Landlord-Tenant Alliance BUT BE CAREFUL!

As the print and graphic communications industry continues to redefine itself, not all owners seeking to reduce costs via consolidation savings are interested in transitioning from ownership. An alternative to "merger" or "sale" is a landlord-tenant alliance that looks and feels a lot like a "tuck in" acquisition.

The basic concept is that one company relocates to a landlord/strategic partner in order to save on overhead costs. The arrangement can go anywhere on the spectrum from shared infrastructure to landlord-tenant lease and beyond. 

The good part: ownership is not affected so each side remains independent, which is comforting if it doesn't work out, at least in theory. 

The bad part: no skin in the game for the landlord means they hold all the cards on negotiating the details and resolving disputes as they come up.

The other "not so good" points:

• confusion in the marketplace among customers;
• bank and leasing company consents;
• uncertainty among employees;
• supplier credit concerns;
• liability risks;
• what if the landlord/partner sells its business?

We've seen recent cases in which the jury is still out: one in Northern California involving two highly reputable companies; another one in New Jersey in which the "landlord" also provides production labor to the "tenant" who is paying fair market rent; and a NYC area deal announced as an Acquisition which really involves relocating equipment still owned by the "seller".

I remember a "dating before merger" case in Connecticut over ten years ago in which the two owners bonded like brothers and headed out to DRUPA to further cement the relationship. Shortly thereafter the chemistry turned, and eventually the "tenant" went under and the "landlord" circled the drain not far behind.

Anyone thinking of going this route should seriously invest in professional advice (meaning, NAPL's Business Advisory Team) to map out the plan and be sure the bases are covered.

 

 

 

 

 

 

Heard from Owners at Graph Expo 2011

Here are a 5 snippets from owners who attended Graph Expo 2011:

"the show has morphed into a business intelligence gathering as opposed to a place to consider equipment"

"government ought to protect US printers from printing moving offshore"

"the industry needs a national ad campaign to get the word out that print is not dead"

"my company will not be a marketing services provider but I still want to know what's going on with social media and QR Codes"

"I've come to recognize that the end game for selling my business won't make my family rich, as this is really a lifestyle business more than a source of building enterprise value"

The best M&A tip was from the owner of a leading company who is considering an acquisition, and, as part of his due diligence, farmed out a job to the candidate which created the excuse/opportunity to visit the shop, walk the floor, and chat with employees. Brilliant move!