M&A Value is in Customer RELATIONSHIPS, not Customer LIST

M&A participants -- and their CPA and lawyer advisors -- often use the phrase "customer LIST" to mean general intangible assets; however, in the print and graphic communications industry, general intangible asset value is driven by "customer RELATIONSHIPS" linked with captivating capabilities. The actual "customer LIST" is not the key factor in valuation of general intangibles, contrary to the loose jargon used by some folks.

A good example of weak customer relationships in the context of general intangible valuation came up today. NAPL's member-client in this case is a sheet-fed offset printing company using old equipment and running out of a middle-of-no-where plant. The annual sales have stagnated around $3.0 million. There are a couple of not-so-great sales people and a lot of house accounts. Owners are not involved in sales. There are no capabilities such as database management or digital asset management that add "technology hooks" to lock in customers. There are no creative services, mailing services, or fulfillment services to facilitate customer retention. The management lacks customer interaction, and the sales people and CSRs are weak at understanding their customers.  In this example, the customer relationships are very poor; therefore, the value of these general intangibles is going to be somewhere between the value of a customer LIST and the value of general intangibles fueled by strong customer relationships linked with captivating capabiliites.

To build the value of the general intangibles in this case, we recommend conducting an NAPL eKG customer diagnostic survey to learn more about the customer base; moreover, we recommend proactive outreach by management to connect with the customers individually to learn about their needs/wants in the context of providing solutions, even if the company's output is limited to sheet fed printing.

Please note that general intangible value can be significant without captivating capabiliites; but, if the customers are doing business limited to "ink on paper" printing, then there needs to be demonstrated value in the customer RELATIONSHIPS in order to achieve good value for the general intangible asset. What do we mean by customer RELATIONSHIPS? Ask my NAPL colleague Mike Philie, he can pick up where I leave off on this topic.