Hyding Out

A Successful Merger of Equals: Premium Color Group and Hand Pack

Mark Fitzgerald and John Watson, founders and partners of Clifton, NJ-based Premium Color, arrived right on time for their "check up" appointment at NAPL's offices. Their new partner by merger, Andy Griffin, was not with them so I couldn't resist. "Is Andy running late or did you already get rid of him?", I asked in jest. Although some mergers go bust in the first few months, this one is rock solid and Andy was just a few minutes behind, a scheduling nuance as opposed to something worse.

Let me start by saying that these two companies were NOT in trouble when they merged; they got together for all the right reasons -- revenue enhancements, cross selling of capabilities, building a management team, greater profits through economies of scale -- rather than "because they had to do something."

It's been about ten months since these two successful companies joined forces. How are they doing?

Here's a quick report card (the public version, obviously confidentiality limits disclosure of other items):

1. The business is doing fine despite horrible pricing pressures in the marketplace;
2. Cross selling is working, as fulfillment has been sold to offset customers and vice versa;
3. Cost reductions due to efficiencies have been identified and IMPLEMENTED, not just talked about;
4. The 3 partners are working well together, as the newest partner, Andy, has really made a big impact in cost control and administrative responsibilities;
5. Financial management is guided by an in house controller rather than via a CPA-firm relationship;
6. The banking relationship is satisfactory despite the credit crunch;
7. The future is bright despite the day to day challenges affecting all businesses in this industry and beyond;
8. NAPL is pleased to contribute to their continued success by providing insights and perspective from our consulting team

 From left to right: John Hyde of NAPL, John Watson of Premium Color Group, Kathleen Appleton of NAPL, Mark Fitzgerald and Andy Griffin of Premium Color Group
 

Your Buyer for the Business Wants to Talk with Your Bank, Ok? NO WAY!

Preliminary talks for the possible sale of your print and graphic communications business are promising. The potential buyer has not been turned off by your large debt load and the unprofitable results of 2009. The process is going smoothly and you want to make this work.

Then the buyer pop a leading question: "You don't mind if I speak with your bank, do you?"

You pause. Fork in the road time.

If you refuse, does the buyer walk away, thinking you are uncooperative or hiding something? And besides, he/she kind of expected getting the go-ahead without any hesitation. You are inclined to say "sure", but you first check with NAPL M&A advisors.

Here's what we recommend in nearly all cases: DO NOT LET THE BUYER NEGOTIATE DIRECTLY WITH YOUR BANK.

Why?

Because nothing good can happen.

Huh?

The bank wants to get its debt paid. That is the only objective for the bank. If the value of the business is greater than the value of the bank debt, that doesn't matter. The bank will push you to take the buyer's offer that, by coincidence, is a penny more than the bank payoff figure. The bank doesn't care if suppliers are holding the bag, or if leasing companies are hung out to dry, or, for that matter, if shareholders including you get nothing.

The buyer wants the lowest price and the best deal. If the buyer can get away with satisfying the bank but not paying a penny more than it takes to get a lien release, well, that's good for the buyer. Other stakeholders can just pound sand.

So, the introduction of the buyer to your bank has really made a difference. Your bank is paid; the buyer gets a great deal. 

What about you?

Yeah, what about you. By the time the bank and the buyer haggle over the price and terms of the transaction, you've become irrelevant. The bank will hammer you into caving in on any attempt to delay the process while you scramble to negotiate your deal. The buyer will tell you what you want to hear until the bank gets you to capitulate. Then the buyer blames that darn bank.

Bank is paid; buyer gets a deal. You get.....well, you know the 4 letter word I'm thinking of.

So, remember: DO NOT LET THE BUYER NEGOTIATE DIRECTLY WITH YOUR BANK.

There are tactics for how you, as the owner, can manage and control this process without alienating the buyer or frustrating the bank. For those insights, you know where to find me and the NAPL M&A advisory team!

"Don't Even Think of Shopping Your Company!"; Cautionary Words from a Buyer of Printing Businesses

"Don't even think of shopping your company,"booms the voice from the speakerphone. "If you're shopping it, I have no interest in talking further."

That message came across loud and clear to the NAPL member-client in my office, an owner of a once-successful-but-now-treading-water printing company. The first two discussions between the client and the potential buyer had gone well. But now came this stern admonition from the potential buyer that he would walk away if the client was out there talking to other suitors.

What should the client do?

First, let's assess the relative bargaining positions of the client and potential buyer. The buyer is looking for sales to "tuck into" his existing infrastructure----he has no interest in taking on the client's debt-laden balance sheet. The client is looking for a graceful exit from ownership and for an opportunity to participate in the revenue from his customers going forward. Lots of buyers are looking for sales; not as many owners selling to "tuck in" acquirers as you'd think. The client selling clearly has the upper hand here.

Second, what's wrong with shopping the company? From the seller's point of view, nothing. Before signing on the dotted line, wouldn't the owner want to know he got the best deal he could? Doesn't he owe it to his family (and his creditors) to vet out all reasonable opportunities? From the buyer's point of view, the seller shopping has negative connotations of spinning his wheels on something that is going to get away in the seller's over-optimism of "price" and "structure". 

Third, in my experience, buyers who use the "don't even think of shopping it" argument tend to be sophisticated, aggressive, and shrewd. Some would call them "vultures", but the guy on the phone ordering my client to not talk to anyone else is known to pay a decent price, so he escapes the "bottom feeder" tag. But clearly, the "don't even think of shopping" argument, combined with the tone of voice, suggests the seller better be armed and ready for serious M&A.

All in all, my client in this case is willing to accept the warning, and he is giving this potential buyer a window of opportunity to explore a deal.

Stay tuned, we'll see what happens in future blog posts.