In a recent survey conducted by NAPL, 30 percent of the respondents indicated that they will be looking to expand their business by acquiring another printer. Five years ago, the same survey results indicated less than 11 percent were looking to grow by acquisition.
Why the change? I believe it’s twofold—organic growth is become more and more difficult due to current customers ordering less, more competition, and mounting pricing pressures; and the old philosophy that “if we build it, they will come” no longer works. Sure, adding new services and equipment may bring in new business, but not enough.
Of the 70 percent who are not looking to grow through acquisition, many said they are doing OK and quite a few said they simply didn’t know the best way to get started. Others said it was expensive and some actually thought it was risky.
Here’s why printers are looking to expand by acquisition:
- Expand their business & client base within markets they are already serving
- Fill excess capacity
- Add new products/services, expand capabilities
- Diversify their client base
- Consolidate overhead and other expenses
- •nter new geographic market
The same survey asked those who had done an acquisition whether it was successful or not. Overwhelmingly, 87 percent felt the acquisition at least met some or all of the expectations and was overall positive. Only 6.5 percent said the acquisition fell far short of meeting expectations and was unsuccessful.
As to the current state of mergers and acquisitions, I see very few sales of stand-alone entities. The sale of intangibles combined with orderly liquidation of the seller is about the only game in town if you have to sell. Prices for general intangibles (the customer list) remain good, but there is some downward momentum for royalty percentages and number of years that a buyer will pay royalties.
Sellers continue to misunderstand how price and structure of a deal works as it relates to what they believe is the total valuation of their businesses. Buyers are looking for bargains and some sellers continue to cling to the hope that someone will buy their business intact and pay cash.
Many of the national print franchisors facilitate consolidation among their franchisees, and a few are very active in looking for “tuck in” opportunities that will help their franchisees grow.
Financial results of from 2007-2011 were not trending upward for most printers. And while financial results for 2012 and 2013 year to date have improved, the improvement has not been a dramatic one—two to three percent growth, on average, but even that is not uniform. The psychological climate continues to be negative, but is improving as economy rallies. Banking conditions enable distressed sale opportunities, but financing is very hard to come by for all but the very strongest buyers. Debt is the major hurdle to a successful merger or acquisition, according to many buyers.
Here are some proven strategies for quick and small commercial printers who want to consider acquisition as a path to growth:
- Strengthen your offering by adding expertise (data management, creative services, marketing services, signage, promotional products etc.) and equipment (wide-format, large-format sheet-fed offset press, sign making, high-volume color digital device, etc.) without starting from scratch
- Increase profitability by purchase of another printer’s customer base
- Expand market presence by acquiring additional locations within a local geographic area
- Gain greater scale by merger with a compatible equal partner
Keep in mind why printers are selling: some need to satisfy creditors in an orderly manner, some want to achieve value for their general intangibles, some want to convert assets to cash for some other reason (divorce, estate, partners exiting business), some owners are burned out, some want to expand into larger space and add equipment without the risk of personal guarantees, and some simply have distressed businesses and are considering bankruptcy or liquidation.