Everything You Need to Know About the Mergers and Acquisitions Landscape
The industry is a constantly moving and evolving thing. Over its long history, there have been events and trends that have changed the face of the print and promotional industry to its core, such as the constant evolution of technology, the dawn of the internet and the trend of rapid consolidation as a result of mergers and acquisitions. That last one can be especially daunting, as it can be a tough area to predict and is left to the whims of humans, rather than machines.
But, it's not as scary as it seems. Yes, it's an important facet of the modern business world and it has consequences that ripple into your business, but it's not unmanageable. You could even find yourself at the center of the movement if you play your cards right. That's where expert advice comes in.
To try to get on some steady ground regarding the unstable landscape of mergers and acquisitions within the print industry, we spoke with Casey Campbell, president of PathQuest Group, Fayetteville, Ga.; Jim Anderson, founder and president, and Roger Buck, associate, of Corporate Development Associates, St. Charles, Mo.; and Rock LaManna, president and CEO of the LaManna Alliance, Palm Beach, Fla.
Ponder the process
Fair warning, we're going to use buzzwords like "millennials" in this section. Not because we'e trying to complain about the rate of avocado toast consumption or to balk about kids on our lawns, but because age is a crucial aspect of why the print industry has seen so much consolidation. This is a good place to start when thinking about why consolidation is so prevalent. As Campbell puts it, the demographic finds itself aging.
"The demographic is simply getting older within trade manufacturers and distributors that do not have a good succession plan for their business," he said. "There are more and more distributors who are getting into their mid-60s and realizing, 'Hey, I don't have a plan. I don't have a succession plan. I need to do something.'"
Anderson has noticed this trend, too.
"Activity, particularly on the direct-selling manufacturer side of the print industry, is vibrant, and driven mainly by the aging of the owners and the competitive nature of the printing industry, which is under severe technological pressure,"he said.
Why should you buy or sell? Before we get into the specifics of "how," let's continue with the "why" of acquiring companies. Aside from fleshing out a succession plan, as many businesses have that all figured out, there is the idea of acquiring a company to fulfill a personnel need in the company. The same way you might hire administrative assistants to fulfill tasks you can't handle during the day, or that you'd like to delegate to others, acquiring a company can create a division dedicated to just those sides of the business.
"One of the key challenges in our industry is [that] salespeople do not have time to prospect, as they are often tied up with their current customers," Buck said. "Acquiring a company can add new sales growth and new salespeople. It can be a win-win."
On the other side of the coin, selling one's company to another or ending up absorbed into a larger company can free up time to commit to sales fully.
"Often, smaller companies have a hard time getting past the next sales level hurdle," Buck continued. "This can be due to a lack of time, sales talent or monies to invest in new technology. When a company hits that roadblock, sometimes selling to a larger firm is the only way to service your clients. However, in most cases, companies are sold as the owners are looking for an exit strategy."
"Global investors walk into the marketplace with fistfuls of cash," LaManna said. "They are looking for print organizations that have reliable and believable historic pre-tax profits and sales growth forecasts. Growth is a big part of the M&A crowd's strategy. They want print and print-related segments that can grow quickly, producing sales and profits. There's also an understanding that you must have talented professional print managers to power the engine of growth."
He added that it boils down to one major theme for both parties: hope.
"The smaller seller hopes to give its customers, employees and suppliers a sustainable solution and brighter future," he said. "The larger company needs someone to help it cross the finish line to better sales and profits. It knows how to run the race but wants to get faster."
Be smart about it
Acquiring or selling a business isn't a sign of power. Having your company absorbed into a larger firm isn't an end. Instead, it could be a crucial commitment to your clients and customer service, which is the bedrock of success in this industry. Also, one doesn't just scoop up smaller businesses like baseball cards to show off a collection.
It's an incredibly strategic thing to do that one should be considered deeply and executing flawlessly. But, that's much easier said than done.
It's daunting, and it's not something you can really practice, unlike other facets of business. You can rehearse your sales speeches. You can even try them out in some low-pressure environments. But there's no preparation area for acquisitions. That's why, as LaManna puts it, the best buyers don't make mistakes.
"They are professional investors who understand long-term strategy and the importance of having the right people to execute a vision," he said. "And while they'e got the cash, they are also the masters of buying high potential, low-risk investments at a discount. Their average day is the seller's biggest deal of his or her life. Many deals fail due to lack of the sell-side team of advisors, knowledge and experience with the M&A game. It takes preparation, talent, experience and confidence to smartly negotiate at the dealmaker's table."
Just like purchasing anything, it's often better to spend more on a higher quality product than go for cheap. If you go for the cheap, quick option, you're more likely to have to replace or maintain that product more often, which is a worse deal in the long run than spending more in the first place. It's the same in business when you're looking to acquire smaller firms. Look for the ones who add value.
"Buyers need to have a strategic plan," Buck said. "What do you want to grow by acquisition? Is geographic location a factor? If you're a manufacturer, what product lines are you looking to add? What's your budget? Are you looking to assimilate the sales volume or run a remote location? Are you prepared to run a remote location?"
These are all vital details to take into account. Your employees and their lives are also wrapped up in this, too. So, if you're looking to sell your business or acquire another, think about what happens for and to them.
"Typically, the acquired company is smaller, and the benefits to the remaining staff can be significant," Campbell said. "Often the acquiring company has better employee benefits, better sourcing resources and often better pricing leverage with vendors. Having new leadership is also beneficial, because often the acquiring companies have a more defined long-term vision and aggressive focus on growth. Vice versa, the acquiring company often acquires unique expertise in certain vertical markets or specific products."
Like LaManna said, the best buyers don't make mistakes. The selling companies should have all of their ducks in a row, too. That's an attainable goal with proper planning and clear goals.
"Too often small print companies do not start positioning their company for sale soon enough," Campbell said. "Some things to focus on in advance are [that] three-year trends are key, and sales and margins need to show historical and future growth to get the best valuation. Optimizing margins is critical. Staffing needs to be lean and productive."
Buck also touched on the idea of being "lean and productive" while positioning for a sale.
"Whether you're a distributor or manufacturer, if you are planning to sell your company, take the time to 'house clean' physically and financially," he said.
We understand that "don't make mistakes" is tough advice to follow. The better bits of advice are to understand your goals fully and to grasp why an acquisition or merger is necessary to obtain them, plan every step of the way and get everything in your business ready for anything that can come your way in the process.
"Bottom line, it's a math game," LaManna warned. "Be knowledgable of the M&A process and its rules. A good sale can be a great time if it's done right."