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M&A Strategies -- Ultimate Survivor's Guide

January 2009 By Bob Cronin and Janice O'Driscoll

Start by examining your monthly overhead. Take a look at your core needs—in people, resources, supplies, etc.—and remove what’s not absolutely essential. Do you have unused equipment that you could sell off? Are you overstocking raw materials? Are you providing free warehousing? Are there three (or more) people handling what two can do sufficiently? The economy gives you the opportunity to make tough decisions. 

The second part of cash flow improvement is keeping new expenditures in check. If you need new, more automated equipment, so be it. But nice-to-have items—and their risk—should be avoided like the deep-sea angler. Ensure capital expenditures can bring your company fast, profitable returns. Would a digital output device make you more competitive than another 40? press? Could the purchase of new bindery equipment attract more customers than another press? 

Once you’ve done what you can to optimize cash flow, you can start considering M&A. A merger can be attractive during tough times. This is especially true in the case of “vertical mergers,” where the two companies coming together collectively move up the value chain (for example, a digital printer merging with an integrated marketing firm, or a wide-format shop with an installation/finishing operation).

For both mergers and acquisitions, making a deal holds certain requirements. However, in bad times, poor decisions can sink your ship. Evaluation should thus be undertaken with vigor.

Buyer Guidelines

Don’t be lured by price—An unbelievably low price for a seemingly good property may indicate something’s amiss. Understand a potential acquisition’s full financial situation before making any commitments.

Examine the real value—Will an acquisition strengthen your competitive position? Will you realize purchasing, manufacturing or distribution synergies? Namely, will it drive cost savings or provide a greater selling proposition?

Conduct thorough due diligence—Examine your prospect with the attentiveness you would your own life preserver. Ask questions. Demand answers. Check for leaks. If management cannot provide needed information, move on.

Devise solid plans for the property—The theory that 1+1=3 happens only with a strategic plan that makes it so. Craft, refine and follow a plan that maximizes the company within your particular enterprise.

Assess your risks—It’s always wise to plan for the worst-case scenario. If an acquisition fails miserably, what does it do to your core business? Does it put your company, customers, image or future at risk? Be honest. Deals often have a way of looking more attractive than they are. 

As you sort through these guidelines, consider: At your current juncture, financial situation, age... is it worth the risk? Even if you can make acquisitions does not necessarily mean you should. In our extreme economy, your patience and selectivity are essential components of your Survival Kit. If you believe you can make the “all-time best deal ever,” verify your assessment. Hire a consultant for an expert opinion. While the basics never change, the stakes do. A questionable acquisition now could cost you life and limb.

Seller Guidelines 

Rigorous deliberation is even more important for sellers. You have years, significant cash—perhaps your entire careers and retirement—invested in your businesses. Selling it can be difficult, but it can also be the best decision you’ve ever made. Consider: 

What is your reason for selling? Are you retiring, diversifying your portfolio or looking for a financial partner? Your reason will help you in crafting your action plan. 

Are your expectations realistic for today’s marketplace? Your business’ value is likely different from where it was a year ago. And there are many circling sharks looking to chomp up quick bargains. If you have a solid property, give it a fair shake by marketing it properly. Even if you have to adjust your sell price, there are options to remain invested and draw returns as business rebounds.

Have you positioned your company for future success? Buyers want to know there’s value in an acquisition beyond today. The more growth opportunities you’ve laid out for your company, the more valuable it will be to a prospective buyer.

What type of buyer is best suited for your business? Selling to a competitor, strategic investor or private equity firm each has its particular advantages and concessions. 

Understand the tax consequences. Every type of transaction has taxation issues—even a family succession or an ESOP. Factor these into your sell price and plan accordingly. 

You sell your business only once. Selling during the extreme economy can, indeed, be lucrative. Proceed with caution to ensure you get what’s right for your life’s work.

Graphic arts companies are amongst the most resilient businesses out there. We’ve weathered the conversion to digital files, the migration to CTP, the elimination of numerous jobs and processes, and a continual influx of industry-revolutionizing technologies. The extreme economy poses no greater threat than what we’ve tackled before. Printers will prevail, and the strong will prosper.

We may not know how much further our stocks will sink or how this will all play out in the marketplace. We do know, however, that the extreme economy will present numerous M&A opportunities. Those that use these guidelines can help position themselves to take advantage of the situation and emerge as the Ultimate Survivors. PI

About the Authors
Bob Cronin is managing partner of The Open Approach and has directed multiple M&A transactions. A partner and writer, Janice O’Driscoll creates the Offering Memoranda, business models and research studies. This article has been abridged from “M&A: The Ultimate Survivor’s Guide for the Extreme Economy,” developed by The Open Approach. For a complete copy, e-mail jodriscoll@theopenapproach.net.


 

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