Too Many, Too Small
Of the 12,100 printing brokerages, forms distributors or whatever else you care to call us, more than 95 percent are "lone rangers" or "mom-and-pops"—one or two person home-based firms with average annual sales of under $500,000. Most make no profit and merely maintain the resellers' lifestyles.
Contrast this with other countries such as Canada where there are some 500 print resellers that average $2.8 million in average annual sales. In Australia (where the term is "print farmers") and France ("gophers"), the concentrations are even higher. This is as it should be when scale economies, professional competency and buying power kick in.
Add the fact that most small operators are over 55 years old and have no plan or expectation of succession, and the case becomes clear and compelling. Merge.
In the survey Printing Brokerage in North America*, fewer than 500 mergers of small resellers took place in the period between 2000 to 2008. The effects were a 3.8-times average revenue, and a 20 percent profit, increase. During the same period, nearly 100 roll-ups among large-sized brokerages (average revenues of $6 million) resulted in a 10-times increase in combined sales, and an 8-times growth in profit.
Here's what you should consider:
1. In how many years will we, as owners, exit the business?
2. In how many fewer years (by at least three) will we complete a merger or be acquired?
3. In how many fewer years than the above (by at least three) will we increase the residual value of our proprietary business?
The last item is the most perplexing for small-timers. It means sacrificing personal indulgence for profit retention and, yes, paying taxes. No buyer wants to deal with add-backs. It means changing corporate status to "C," methods of selling (from job to contract to content/distribution management) and investment in IT tools to accomplish these ends. Your trade association should be involved. The PBBA, for example, and this writer to be specific, have the ear of acquirers and the experience in the process. Stay away from high-retainer franchise-type M&A companies that don't know you, your industry or any potential partners of acquirers. Dressing up your business for sale is a long-term process and should commence immediately.￼
Vincent Mallardi, C.M.C., is a the chairman of the Printing Brokerage/Buyers Association International (PBBA) and is a Certified Management Consultant in the paper, printing and converting industries. He is also an adjunct professor in economics. Contact him via email at email@example.com