Consolidation--Moguls of M&A
PI: What types of companies are targeted?
Thompson: We focus our acquisition efforts on companies with excellent track records and with management that wants to stay and be a part of a larger, growing organization, and that are, in fact, for sale. We have found that it's not in our best interests to try to convince an owner(s) that he or she should sell their company. This is a personal decision and one that should not be made hastily.
Absent an operational or sales fit with one of our existing locations, we generally would prefer our potential acquisitions to have minimum sales of $7 million to $10 million. This is a bit dependent on the particular segment of our business in which the potential acquisition will operate. For example, the acquisitions in our Printing for Distributors segment tend to be smaller than those in our Envelope segment. With respect to specialization, we do limit our acquisition efforts to companies that are in one of our existing business segments.
In our Commercial Printing segment, we have both web and sheetfed operations and continue to seek and add to our capabilities in each. With the Label segment, we have both pressure-sensitive and glue applied. We would consider potential acquisitions in both areas.
PI: What payment options do you use?
Thompson: In today's stock market environment, we use cash. We will incorporate an earnout feature when circumstances are appropriate, e.g., where the business is growing rapidly and it is difficult to reach agreement on the correct earnings of the business. Earnouts are sometimes a bit difficult to administer, as events subsequent to the closing can cloud the results of the business as it once existed.
For this reason, it is probably better to limit them to a fairly short term. However, earnouts can serve the purpose of bridging a gap.