Opportunity Knocks

If I opened this article by saying these are interesting times, it would illicit everything from a sick chuckle to a wisp of anxiety.

Much of our printing industry is off 20-30% or more in gross revenues. I do not need to tell you how that hits the bottom line. The really good companies I see at this moment are experiencing flat year-over-year comparison revenues. Would you believe there are a few outstanding companies that are actually up? Don’t set this article down just yet as there is opportunity for everyone, even in this environment.

Let’s face it, as a graphics business owner when was the last time you were really, really happy to have a rush order from a poorly organized customer? Right now it brings a smile to our faces and capacity to our facilities. With any luck, we will be seeing that those rush orders are really a door opening for pent up customer demand. It could be a result of our customers running inventories down to what was previously considered unacceptable levels. Let’s hope there are more rush orders to come.

It’s a well used phrase that interesting times like this bring opportunities for those that are looking, but it is still no less true of a paradigm. While a rush order filling pent up demand is welcome activity, there is a more significant opportunity for both those whose revenues are off 30+% and those who are fortunate to have flat or growing revenues, but still have excess capacity.

The significant opportunity I speak of is in the merger/acquisition and consolidation of printing companies. A company that is struggling to make payroll and overhead expenses looks a lot different when it is merged into another similar company. Underperforming businesses often feel like they are between a rock and a hard place. The company may not be doing well enough to stand alone as a desirable business acquisition which would allow the owner to completely “cash out” for retirement. These underperforming companies normally show other stresses when reviewing the business’ financials too.

Come Together
Of the underperforming businesses I see, merger/acquisition and consolidation candidates come in all sizes and situations. A five-year-old firm’s owner may find he has hit the wall financially and be ready to join a more established firm. A transaction like this would normally include consolidating and/or liquidating equipment, bringing the client base over, and obtaining an employment agreement as part of the transaction structure. Surprisingly, there is often enough money to go around in these scenarios because of the economies of scale. Structured properly, a scenario like this can bring a sigh of relief to a financially stressed underperforming owner and a welcome increase of revenue and profitability for the acquiring company.

Another scenario I experience would be a 20+ year old firm that is also seeing hard times. I often see businesses like this that were once quite a bit larger, but have not or can not shed the historic overhead issues to remain as a profitable standalone company. There is normally a significant client base with these companies, a good reputation, and well trained employees present.

The owner of a 20+ year legacy company can expect a mix of cash and residual payments in their transaction and be able to ride off into the sunset. Not a bad alternative when it seems like everything an owner has worked for over the years is going down the proverbial drain. There is also the added comfort for this owner of knowing some of his valuable employees will remain employed in the merged entity and the client base will be well taken care of, each of which had been like family to him.

Take a Chance?
For those of you with good or even great companies who are feeling fortunate for only being flat with revenues, there is no time like the present to increase market share and profitability. Because the competitive buyer pool for acquiring underperforming companies is much smaller than for those businesses that can stand on their own in a transaction, industry buyers not only have an advantage but may actually be the best and most viable alternative for these legacy companies.

Structured properly, these mergers/acquisitions and consolidations of industry players can be win/win situations for both sides.

George Hicks is a senior VP at Business Team Business Sales and Acquisitions in Southern California. He specializes in the printing related industries, with 30+ years of experience. He can be reached at 310/539-8300 or hicks@business-team.com.