Hyding Out

Growth by Strategic Acquisition: Ten Tips for Owners of Print and Graphics Communications Companies

1. Understand that Trust and Comfort are HUGE
2. Maintain ethical reputation
3. Preach financial stability
4. Remember being a “White Knight” does not mean “bailout”
5. Live with confidentiality
6. Explore M&A efficiently
7. Walk the line between “open & honest” and “being too blunt”
8. Provide exceptional capabilities
9. Demonstrate M&A successes
10. Make key employees part of your M&A process

 

 

The Latest on Valuation of General Intangible Assets in the Print and Graphics Communications Industry

At NAPL, our business advisory practice resides at the cross-current of 3 huge drivers of change:

1. the fundamental redefinition of the print and graphics communications industry;
2. the M&A consolidation trend that involves long term redistribution of market share to the "leading companies"; and
3. the debt "hangover" affecting loans and leases of numerous privately-owned and family businesses.

This close-up vantage point affords our NAPL M&A team (Tim Fischer, Mike Philie, Kathleen Appleton, Tom Cobery and I) a unique perspective on "how" and "why" strategic transactions come together or fall apart. 

One common thread clearly emerges from all the activity and noise in the marketplace: buyers want to acquire strong customer relationships and they are willing to pay for a proven book of business.

The so-called "intangible asset", meaning, the customer relationships, continues to attract interested buyers especially if the asset is de-linked from the tangible assets of the balance sheet. This surgery is called "restructuring", and it is a craft I've honed over the past 22 years, leveraging my legal background, M&A expertise, and printing industry acumen. You can count on one hand the number of transactions that come to frution in which some form of debt restructuring is not needed. Other consultants/deal makers may see things differently, but that's our view at NAPL. 

Within this backround and in light of the economic conditions affecting our industry as well-documented by NAPL Chief Economist Andy Paparozzi, here are 3 Key Learning Points about Intangibles value from the NAPL Business Advisory Team:

1. Valuation of general intangible assets have held up and could increase in 2012-2013 because of the imbalance in the marketplace between sellers and buyers; but.....

2. NAPL valuation methods DO take into account likely attrition of customer work due to fundamental changes affecting our industry;

3. Buyers will pay more for intangible assets from sellers who can document their customer relationships with hard data from diagnostic tools such asNAPL eKG Competitive Edge Profile  

Unlike owners 25 years ago who correlated equity in equipment with retirement planning, owners today recognize that the real value in their business resides in the customer relationships. I am proud that NAPL has been a "thought leader" in educating the industry about intangible value over the past 8 years and even as far back as the 1980s.  

Don't hesitate to contact us for a Business Valuation, a "Second Opinion", or an Intangibles Value Assessment. 

Is Your Financial Information "Transaction Ready"?

If you plan to DO NOTHING with your printing and graphics communications business during the next 3 years, stop reading. But this blog post is for you if you are one of the many owners who may engage in one or  more of the following types of corporate transactions by December 31, 2014:

1. bank financing for line of credit
2. equipment financing
3. real estate expansion
4. merger or acquisition
5. sale of business to strategic buyer or entrepreneur
6. private equity or ESOP
   
7. succession planning gifting of shares

The date is relevant because many corporate transactions involve 3 years of financial statements and right now is when a lot of companies are putting together their 2012 information.

The question is: when you are ready to seriously consider a critical corporate transaction, will your financial statements by ready to effectively communicate your story? More importantly, what steps can you take NOW to be sure your house will be in order when the financials go under the microscope?

At NAPL, we suggest that owners and senior managers step back from the usual process of preparing year-end financial statements and assess the extent to which their financial information presents the company in the best light possible.

Here are 3 questions to ask your team (and yourself):

• What conclusions would be reached when you present year over year sales and EBITDA comparisons including documenting adjustments related to owners' compensation, affiliate transactions, and one-time items?
• Are the financial statements prepared by a reputable CPA firm using "review" or "audit"-quality standards complete with footnotes?
• What is the company's break-even point and what observations can be made based on tracking projected vs. acutal results each month?

Remember, a skeptical CFO-level analyst must be able to quickly construct an accurate cash flow model using your information. It's in your best interest to be sure your financial information is "Transaction Ready" before you open the door to a corporate transaction. 

Feel free to contact me or my NAPL colleague Tim Fischer, our resident subject matter expert on financial management issues, to request a confidential evaluation of your transaction readiness.

 

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".

 

 

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

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!

 

10 Attributes of Leading Companies in the Print and Graphic Communications Industry

NAPL research and business advisory services each refers to "Leading Companies" as part of our lexicon, whether in studies or in providing counsel and guidance to owners seeking growth or preservation of capital.

"Leading Companies", according to NAPL, come in all shapes and sizes. To be clear, there is no "optimal" size for a printing company, there is no magical set of capabilities that defines leadership.

Without a true forumla, how do we know who is a "leader" and who isn't? And why does this matter?

First, it matters because leaders have a bright future because they are capturing----and will continue to capture----market share from those who are transitioning from ownership. Simply, the industry is being redefined and market redistribution offers historic opportunity for a select few, perhaps ten percent of the industry. Yes, 90% of our industry is "treading water" or worse. The 10% in the leading company category have upside potential in gaining market share from the folks in the 90% bucket.

That's not to say that leaders are happy campers. Industry challenges such as profit erosion and sales attrition affect everyone, and no one is breaking out the champagne just because they posted a profit for the month.

So, how do we identify leaders? Here are 10 attributes of leading companies, not to say that there aren't others:

1. Well-run by “owner-manager” or “owner-leader”
2. Profitable over many years under different economic climates
3. The business is reinvented or transformed as conditions change over time
4. Consistent and effective communication with employees and suppliers
5. Strategy and planning are on-going processes even if not "formal"
6. Solid financial management, meaning, owners are"watching the store"
7. Timely and accurate information is readily available and supports decision-making
8. Infrastructure is clean and organized
9. Reinvestment in people and equipment/infrastructure is consistent
10. Owners engage in self-learning via associations and peer groups

The list is not all-encompassing and each item does not apply to all leaders. But take the test: how many of these do YOU have? What do your key employees say about these attributes?

If you want to discuss options for maximizing the value of your leading company, or to discuss options for transitioning from "treading water" to "leader", don't hesitate to call in confidence for an initial consultation.

 

 

 

 

 

 

 

 

 

Principals Talk M&A with NAPL on "News Talk" Podcast

Mike Kellogg, CEO of Century Direct, and Charles Tuminello, a partner at KM Media, shared their insights on M&A during "News Talk", an NAPL webinar which was hosted by my colleague, Howie Fenton.

Facing critical decisions as to investing in the business in order to remain independent, Charles and his partners decided reduce risk by merging their business, Mark Litho, into Kay Printing to form KM Media in 2009. Today, they are minority owners of a larger, financially strong leading company.

Mike Kellogg and his partners have done numerous M&A transactions to build Century Direct into an industry leader over the past decade.They are poised for further growth by strategic acquisition in the New York City marketplace.

Both Charles and Mike were candid in sharing their experiences.

If you are an owner considering growth by acquisition or transition from ownership to preserve value, then click on this link and listen to this informative dialogue.

NewsTalk_Live!_Broadcast_Two_04-21-2011

NAPL M&A Outreach Communications Achieve 10% Response Rate in 2011

In first 70 days of 2011, NAPL M&A outreach communications on behalf of Strategic Acquirers achieved 10% response rate overall with all clients having conversations with acquisition candidates within a week of contact by NAPL.

Companies contacted on behalf of 3 clients:

• ·        Upstate NY – 5 responses within 5 days - 37 target companies
• ·        Central NJ – 2 responses within 2 days - 33 target companies
• ·        Southern NJ – 4 responses within 5 days - 45 target companies

"It’s gotten easier, people are more realistic," says NAPL consultant Kathleen Appleton, who utilizes research and contacts to identify potential candidates for a strategic relationship with NAPL clients."   

"Owners are accepting the fact that to survive in the industry they need to become part of an entity that offers a broad range of value-added services, "she adds.  "A year ago they were more concerned about having a number in mind."

NAPL's Mergers & Acquisitions Team offers company executives trusted advisors who can help them build long-term shareholder value through strategic mergers and acquisitions. The Team provides merger advisory services, as well as helping companies with strategic sale of a business, strategic partner assessment/procurement, acquisition of general intangibles, and post-merger integration services. For information, contact NAPL Senior Vice President Tim Fischer at (201) 523-6376 or tfischer@napl.org or NAPL Senior Vice President John Hyde at (201) 523-6313 or jhyde@napl.org.

 

 

 

Classic Graphics acquisition of Belk Printing Technologies: 3 Lessons Learned

Without breaking any client confidences, I can share 3 "Lessons Learned" from the January 2011 announcement of the M&A transaction involving Classic Graphics and Belk Printing Technologies: http://www.napl.org/Media/Classic-Graphics-and-Belk-Printing-Join-Forces 

1. Start M&A talks with a fresh perspective even if prior encounters failed. Owners who rule out potential M&A opportunities because "we already talked with them" can miss the boat by getting caught up in the past. New opportunities come with each new day. Classic and Belk flirted over the years but that did not prevent a "fresh start" to exploring a potential transaction.
2. Trust the recommendations from independent professional advisors. The objectivity and independence of an industry-specific resource (in this case, NAPL) saves time, lowers frustration, decreases risk, and depersonalizes the emotional aspects. In this case, both parties had lots of their own "brain power" but one of the keys to success was that each side trusted the advice from NAPL.
3. Having your financial "house in order" is a prerequisite to successful M&A involving privately-owned print and graphics communications companies. In this case, both companies had excellent data and could efficiently provide inputs and analysis that helped NAPL to quanitfy synergies, establish a realistic valuation, and conceptualize possible transaction structures.