What’s Fueling M&A Fever?

Bob Cronin is managing partner of The Open Approach

Consider this activity from private equity investors:

• Genstar Capital buys Fort Dearborn.

• Wind Point Partners buys York Label, Industrial Label, Quality Assured, and others.

• Wellspring Capital buys D.B. Hess and The Press of Ohio.

• Huron Capital sells Printegra and National Imprint to Cenveo.

• Bears Stearns buys Hilltop Press.

Each of these transactions has brought tremendous new opportunity for company growth. Since our firm, The Open Approach, has been closely involved in a number of these transactions, I can assure you the results have been quite favorable for all parties.

Today’s Numerous Options

Increasing M&A activity has, to some extent, produced aggressive, well-financed owners with multiple printing operations. These people have a vision for the business and believe that bigger is better. They have strong cash positions and can readily invest in equipment, facilities and acquisitions to achieve their goals. They are focused on attaining a target rate of return on investment no matter what.

Such thinking has negative consequences, thus it is acutely important to consider what type of exit/succession makes sense for you. Your options include:

Majors (Acquisition/Rollup)—In an acquisition by one of the majors, your return depends largely on your ability to deliver non-redundant products, services, customers or solutions that correlate with their overall strategy. Hence, your impact on the company’s growth and competitive positioning will be key in determining your selling price.

Large, public companies tend to have large revenue bases, often upwards of $10 billion. An acquisition that provides 10 percent organic growth would need to deliver around $1 billion in new annual sales, limiting the transaction to a complex, multiple-acquisition deal.

Plus, any transaction with the majors must be accretive; it’s not just about adding to the revenue base, it’s about delivering new opportunity. And you must be willing to relinquish control. Before considering this option, look at the company’s trading price, and understand it will pay you at a multiple less than its own.

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