Hyding Out

Lesson Learned from "Tuck In" Acquisition: One Location is a Home Run, Two Locations is a Double

Long Island City-based Stellar Printing saw a great opportunity to increase revenue and profitability when it negotiated and closed the strategic acquisition of Shuttle Printing over a year ago. Stellar president Dirk Anthonis visited NAPL's office recently and we chatted about "what worked, what didn't" in the Shuttle transaction.

I thought there was one huge Lesson Learned from the non-confidential portion of the meeting which I am sharing here on this blog.

But first, some background. A "tuck in", for those not familiar with the term, is predicated on "tucking in" the sales of one company into the infrastructure of the buyer. Profit expectations are based on the consolidation savings and the revenue enhancements. The incremental profit to the buyer is used to formulate a "price" for the general intangible asset of the seller, the customer relationships. The "structure" is based on risk allocation between the parties, meaning, what happens if things don't work out as planned. 

One of the keys to success of a "tuck in" strategic acquisition is that the customer requirements of the seller have to fit the capacity and infrastructure of the buyer. Sure, there can be a remote sales office, we are seeing more of that these days. But the main production should be out of one facility to maximize consolidation savings.

Stellar planned a single location for the post-acquisition integration of Shuttle. 

"So what happened?", I asked Dirk, who is on the left in this photo, next to Tim Fischer of NAPL.  

"Business was too good," he responded, and I am paraphrasing here. "It turns out we needed more space, so we ended up using the Shuttle real estate longer than expected, and then got into having equipment over there."

He didn't need to finish, I heard enough. I knew the profit assumptions would not stand up once there was more infrastructure assets. I know Dirk is a good manager, and he would have done whatever it took to keep the customers happy and make the integration smooth.

Overall, this transaction has succeeded, but instead of a home run, it is a double. 

Lesson Learned: one location, not two, is needed to hit a Home Run in a strategic "tuck in" acquisition.

When to Announce the Merger of Two Printing Companies

NAPL member-clients have heard this advice many times: plan your M&A announcement around the closing as opposed to the letter of intent, unless there are exigent circumstances.

The reasoning behind this philosophy is simple: the owner of the company who is selling his or her business loses all negotiating ability because they can not easily back out of an announced deal. That is why the big company acquirers like to announce "upon letter of intent" as opposed to waiting until the actual closing.

You know all those details that need to be ironed out between Letter of Intent and Closing? Those details are critical and yet they are hard to negotiate if you, as the seller, lose the ultimate negotiating tool: backing away.

So, normally, we prefer to work on communications between letter of intent (or Term Sheet) and closing. BUT, sometimes, probably in less than half the cases, something comes up that results in the need to announce the transaction before all the details are set in stone.

One such example came up this week: Bordeaux Printers merges into L+L Printers (www.napl.org and click on the link from home page to read the full press release).

This case was one in which "something" came up that, in my opinion, which was concurred with by the principals of both companies, required an announcement prior to an actual closing: confidential e mails were allegedly read inappropriately by a person with access to the e mail server at Bordeaux. We were concerned that this could result in "leaks" leading to rumor, misinformation, and unintended consequences. We decided to mitigate this risk by getting out the word properly and promptly, ahead of potential PR missteps.

The lesson learned: owners need to take steps to shore up security around sensitive e mail communications when engaged in M&A talks. One proven tactic is to use personal e mail accounts set up on Yahoo, Hotmail, or Gmail.

If you have questions about WHEN and HOW to announce M&A transactions, please do not hesitate to contact me, as we have lots of communication examples, expertise, and templates for everything from employee announcements to customer notification to supplier letters.