Let's Make a Deal
When the deal-making environment is good, it's quite good. According to J.P. Morgan, a growing number of transformational deals of $10 billion-plus in value and an increase in cross-border transactions drove a 27 percent year-over-year increase in global mergers and acquisitions (M&A) activity last year. So far, that momentum has carried over into 2015—and into our industry.
If you're considering a merger or acquisition—whether as a buyer or a seller—have you asked yourself "Why?" Maybe you want to expand your economic footprint like Edward Martin, president and managing member of Proforma Media & Print Solutions. Or maybe you're like Jeff Scott, former CEO of DocuSource by Safeguard, and need a transitional plan for when you retire. Whatever the case may be, you need to have a clear understanding of the process and the possibilities it may bring.
To help you get on the right track, Print+Promo asked several industry leaders to share their experiences—the good, the bad and the ugly. Here are their stories.
M&A Company: Proforma Media & Print Solutions, New Braunfels, Texas
M&As have been the most efficient way for Proforma Media & Print Solutions to expand. "We are continually growing and looking to expand to other parts of the country," said Edward Martin, president and managing member. "We started in central Texas, but because of M&A, we have been able to open an office in South Texas, another that covers West Texas and Southern New Mexico, and are looking into Northern New Mexico now."
Martin has acquired six businesses over the years: Lone Star Printing, Seguin, Texas; Ewing & Sons Printing, San Antonio; Print and Copy LLC, San Antonio; Advertising Concepts, Longview, Texas; Expressions Printing, San Antonio; and Business Forms Inc., El Paso, Texas. No transaction is created equal, but Martin said the Advertising Concepts acquisition particularly stands out. Interestingly enough, Advertising Concepts' sales were approximately 20 percent more than Proforma Media & Print Solutions' sales when the deal was completed, positioning the latter company for exponential growth. "With the revenue they brought in, we were able to add the necessary personnel and infrastructure needed so I could focus on growing the company and not get bogged down in the everyday order processing," Martin recalled. "Subsequent deals wouldn't have happened without that one."
Every merger or acquisition needs an explanation of how the deal is going to enhance the company's core strategy. Martin has several objectives to meet, starting with the procurement of customer lists. "We want more contacts to call on," he said. "It is a numbers game." He also scopes out new industries and geographical areas for Proforma Media & Print Solutions.
One of the most important attributes, however, is the potential target's ability to grow. "We are an advertising agency, so we can do anything a customer may want from print and promo to technology-based solutions and rebranding," Martin noted. "If we can find a print shop that is only doing commercial print, then we can fairly easily double their sales with promo products. If it is a promo distributor, we can do the same thing, but with print. When we increase sales that means more profits for the seller."
He went on to say that long-term success ultimately hinges on compatibility between buyer and seller. For Martin, that means being able to get sales off relationships. "The key to any of these deals is to leverage the relationships the seller has with their customers," Martin stressed. "We spend a lot of time (years, if necessary) getting to know the seller and making sure they can trust us. If they can tell a customer who trusts them that we will take care of them, then it is a pretty easy transition.
"Once you have that vouch of confidence, the vast majority of customers will buy in," he continued. "If the seller is just filling out bids online where the cheapest bidder gets the work, then there is nothing to buy. Essentially, you are buying relationships."
Challenges are inevitable throughout the M&A process. Martin approaches each deal with certain terms in mind, but always leaves room for negotiation. Despite these precautions, he finds that many sellers want a large down payment, or even a payment in full-both of which are deal breakers for Martin. "In one instance, we initially had to walk away from the deal because the seller wanted too much of a down payment," Martin shared. "Knowing that our offer was fair and they would not receive a better one, we let them explore other options."
Martin and his prospect parted ways on the condition that the seller would call back in three months if he or she couldn't find a better deal. Martin heard back one month later. He teamed up with one of his vendors, a local trade-only printer, to get the necessary capital for the down payment, and the deal was made. "[Our vendor] purchased their equipment while we purchased their customer list," Martin said. "We ran the work through that printer and split the profits."
WORDS OF WISDOM
Anyone undertaking an acquisition must have patience. As Martin reminded, these deals can take a significant amount of time to complete. "If a seller is being cautious about you, don't take offense to that," he said. "It means they care about their customers." Being able to convince the seller that you can pick up where he or she left off will help the process along, he added.
Martin also advised sellers to be realistic. "As a business owner, I understand the emotional attachment you form with the business. You have to be able to set that aside, though," he remarked. "The chances of you getting hundreds of thousands of dollars in cash upfront for your business is unlikely."