Planning and Executing a Successful M&A

Paul Reilly, partner, New Direction Partners.

Peter Schaefer, partner, New Direction Partners.

The good news for sellers is that buyers are out there and that they’re showing considerable interest in acquisition targets that can give them the kinds of growth they are looking for. The interest, by the way, isn’t tied to company size. Although larger companies tend to attract more attention from buyers than smaller ones, we are seeing no clear trends in M&A activity relative to size—deals are being done across the board in terms of revenue.

More useful to follow are trends in M&A transactions that are based on multiples of EBITDA (earnings before interest, tax, depreciation and amortization), the calculation that determines selling price in deals of this type. Compared with a year ago, buyers are more willing to structure transactions around EBITDA multiples as they witness improvement in the general economy and in the performance of individual companies. Multiples for publicly traded printing businesses have gone up, while those of privately owned firms have held steady—a sign that stability and confidence are again parts of the conversation about opportunities in print and packaging M&As.

The Numbers Behind the Letters

We currently are seeing a range of 3.5 to 6.5 times EBITDA in the transactions we are handling for our clients. The distribution generally aligns with business type, meaning that printers serving dynamic markets attract higher multiples than those catering to mature ones. But, exceptions based on individual performance exist: in two of our deals in progress, the multiple exceeds the top end of the range.

A number of things influence how EBITDA multiples are established. In this case, company size does matter, and the larger a firm is, the higher its multiple likely will be. For example, a firm that advances from $3 million to $10 million in annual EBITDA may add up to a full point to the EBITDA multiple range noted above. Buyers will look at profitability. as well as top-line growth, as they decide what multiple the deal should be based on.

Paul Reilly, partner at New Direction Partners, has been in the industry for over 30 years and for the last eight years has been providing investment banking and financial advisory services for privately held and family-owned businesses. He brings supplier experience as a senior executive at Polychrome, now part of Kodak, a worldwide supplier of printing and packaging supplies. He also brings extensive acquisition experience as CEO of Cenveo, one of the industry most active acquirers.
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