Hyding Out

Buyers Will Go All The Way; Sellers Are Just Flirting

Buyers Will Go All The Way, while Sellers are Just Flirting these days. That's where we are currently in the printing industry M&A marketplace.

Buyers are building shareholder value, solidfying "leading company" competitive advantages, or transforming from "treading water" to "leading company". They tend to be serious and focused on exploring strategic acquisitions as a growth strategy. Whatever happened to tire kickers? There are less tire-kickers because no one has time to waste.

Sellers -----I should say, potential sellers-------are the flip-floppers, seemingly answering the M&A outreach letter or phone call just as a way of insurance in case things get worse. About 90% of initial inquiries dissipate when NAPL Associate Kathleen Appleton asks them to clarify their objectives. Many of these folks are not serious about selling their business YET. They start off talking a good game, but then cave in and acknowledge "well, I still want to make a go of it for now".

The serious-buyer and flirty-seller dynamic is counter-intuitive to many observers of the printing industry who assume that "people want out", given the challenges of remaining viable and competitive as the industry refines itself once again. Many of these owners talk a good game until its time to "get real", and then they put off the follow up, sometimes for many months, losing whatever momentum they would have had with the potential buyer.

We've seen some of these flirty sellers raise their hands like clockwork when sales stink for a month or two, and others we know are out there but they are dormant, almost like the stale photos on dating web sites.

Yes, some buyers cut through this clutter and are finding a way to the finish line. It takes persistence, repetition, and patience. And a little luck doesn't hurt.

Franchisor Acquisitions

If you are the owner of an independent quick printer, you've probably received letters from national franchise operators such as Allegra and Alphagraphics expressing interest in orchestrating a sale of your business. In a slow climate for selling new quick print franchises, these companies have learned to participate in the printing industry's consolidation trend by matching buyers with potential sellers. The acquisition by the new buyer of an existing quick printer then leads to a conversion of the company to franchisee status, creating royalties for the franchisors.

So what does this mean for owners of quick printers? This segment of M&A activity in the printing industry provides an alternative channel for finding a buyer when it is time to exit from ownership. Just remember that the franchisors are not providing independent advice to the sellers; it is essential for owners to obtain their own advisors for counsel on numerous issues such as "price", "structure of transaction", leases/loans, post-closing obligations, announcements, etc. Feel free to contact me for a confidential consulation if you are considering a sale of your quick printing business to a franchisor-buyer.   

5 Owners, 4 Clients, 1 Building

A recent site visit to NAPL member-client Turley Publications of Palmer, MA, took me down memory lane. The West Springfield, MA, plant now owned and operated by Turley since 2005, had at least 4 prior owners: Star Press, my client that was sold to Turley; Vision One, whose sign is still in a scrap heap there after they defaulted on a seller note and gave back assets; Vision with and bindery on site, as you see in the sign, Star again and finally Turley. So at various times (and not at the same time) my clients included Star, Vision, and Turley, all over a 13 year time period. Star was sold, Vision blew up, and Turley survived a near catastrophic flood several years ago.

Lessons learned: 1. I've been doing this work quite some time. 2. Throughout the building has not been a priority as no one has lasted there long enough to make it better, although I must say that Turley has done a lot of the right things since they took it over.

The moral of the story is that when a business is acquired the building is rarely the top priority, but in reality it needs to move up the priority ladder. Whether we like it or not, the building is a physical representation of the company and if it looks in disrepair clients and vendors tend to think the company fundamentals may be as well. We are a society where people do judge books by the their covers and that means they also judge companies by their buildings.

The Days When Buyers Ruled The Earth Are No More

Check out this e mail message to a client who is considering an offer from a competing printing company [names are changed to protect identities]:

Joe,

Vulture Printing's offer of a 10% 2-year royalty reflects an outdated buyer-centric philosophy. Ironically, Victor Vulture was a client of my consulting firm, Rampart, that was merged into NAPL in May 2004. Vulture Printing had been an M&A client in the late 1990s and early 2000s. Back then, especially during the economic pullback in 2000 and 2001 and 2002, buyers ruled the earth. I probably advised Victor on exactly these kind of offers.

Times have changed.

Sellers now rule the earth, at least in the printing industry. The reason: companies need Customers and Capabilities. What are sellers selling? Customers and Capabilities……the market for general intangibles is way better today than in years past.

Therefore, buyers have to take on a fair share of post closing performance risk. That is structured via cash, and non-risk consideration.

So, to negotiate Victor's offer, there’s a need to introduce some risk for Vulture Printing: a modest cash payment is one way to do this, as an example: $________ at closing PLUS 10% royalty for 2 years. That is using his methods, just adding. But really I prefer to calculate a price for the asset, the general intangibles. For example, $XXXXXX is price for general intangibles. It is paid as follows: $AAAAAA cash at closing and Royalty of ____% of sales billed and collected until the sooner to occur of full payment of remaining unpaid price or [pick a year 4 or 5 years hence]. That gives time to the seller to get the full amount, just longer.

Tell Victor Vulture that the days of buyers ruling the earth are no more.

John

What To Look For in the Restroom of a Printing Company You May Want to Acquire

I am serious: the restroom of a printing company can give you a pretty good quick reading about the company's prospects for success. "Huh"", you ask. After having visited 100s of companies over many years, I can assure you that troubled companies tend to run out of and not replace toilet paper and hand towels. Whether this is because of the cost or simply neglect, it implies a lack of caring about the company's infrastructure. It sends the message that "we don't care" about employees or company visitors such as customers, suppliers, or lenders.

Printing companies who treat their employees and guests with such disregard as to lack toilet paper and/or hand towels are not likely to have embraced progressive organizational development practices and cultural norms conducive to success. Leading companies do not forget about restroom basics. 

Next time you visit a printing company and find no toilet paper or hand towels in the restroom, ask yourself whether this is a one time occurrence or a crack in the organizational fabric that is a window to the company's culture. Let me know what you find.

Who is Buying Printing Companies

I just spent a day with a new client who is buying a printing company. The guy in the photo who is in good shape is the client, I'm the guy next to him with the blue tie.

What makes this "news" in my little world is that this guy is coming out of corporate America. He is an "individual buyer" in a sea of "strategic buyers".

You would think that individual buyers have played a role in many of the printing industry M&A assignments that I've been involved with over the past 18 years. Actually, there's just been a handful of entrepreneurs. It's been nearly all Strategic Buyers, mostly privately-held businesses, many family-owned, who are seeking to  grow by Acquisition and/or survive by Merger.

Here's the breakdown of who has been buying printing companies:

Strategic Buyers: 95%
Individual Buyers: 2%
Financial Buyers: 2%
Not Sure: 1%

More on this topic down the road.

Why Printers Should Care About Bain Capital vs Banks

Did you see that the banks are being sued by the private equity guys in the Wall St deal involving Clear Channel Communications? This is HUGE for owners of printing companies.

"Huh?", you say.

Owners of printing companies need to be on red alert for signs that their bank is putting the screws to them due to the credit crunch. There is no better barometer of the existence of the credit crunch than having the glamour boys of private equity (Bain and Thomas Lee) having to litigate against the very same banks that just 6 months ago were desperate to do business with them!

Be on alert for subtle changes in tone and body language in dealing with your bank. If in doubt, just give me a shout. I'll set you straight on how to interpret the bank's actions and what to do about it.