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PI 400 -- M&A Activity - Acquisitions Yield To Slow Economy

December 2001
BY HARRIS DEWESE


Have you been thinking now is the time to sell your printing company, buy a 60-foot Hatteras yacht and retire to Boca Raton? Forget it!

Merger and acquisition activity in the printing industry is at a standstill. But, you say, "DeWese, you are crazy! My company is much better than my competitor, Smart Al's Lithographing. Al sold his print shop to a consolidator less than two years ago and he is living in Key Largo where he fishes on his 42-foot Chris Craft. He told me that he was paid more than six times earnings before interest, taxes, depreciation and amortization (EBITDA)."

And I answer, "Smart Al saw the bus leaving, made a dash to catch it and was paid handsomely in 1999. You missed the bus."

"The 1999 Compass Report" reported nearly 190 deals for calendar 1998. "The 2000 Compass Report" reported a decline of nearly 30 percent to 131 deals for 1999. The year 2000, however, saw the number of deals slide to 44—a decline of 66 percent. This year, deals will drop to less than 20. This slide is a 90 percent decline in the number of printing industry transactions from 1998 through 2001.

(Source: Compass Capital Partners—"The 2001 Compass Report")

There are virtually no buyers for printing companies in December of 2001. Some buyers think about doing deals, lick their chops at their perceived ability to buy cheap, but then yawn and roll over for a nap.

Still, you ache for the Hatteras, the sun, the sea and you ask, "How did this happen? What happened to all the buyers?"

In a mere two years, several events and economic changes turned a vibrant sellers' market to a sluggish buyers' market. I'll tell you about the more important ones.

First, there is a perception among stock market analysts, investors and lenders that (1.) the printing industry is flawed, (2.) the people in the printing industry are flawed and (3.) the concept of "roll-up consolidation plays" in the printing industry (and many other industries, for that matter) is flawed.

This perception is a fallacious argument, or an argumentum ad hominem to those of you who passed Logic 101. The fallacious argument goes like this: Master Graphics and Printing Arts America were printing company roll-ups. Master Graphics and Printing Arts America lost money and went bankrupt, therefore all printing company roll-ups will be losers and go bankrupt.

The failures of Master Graphics and Printing Arts America were attributable to flawed management and leadership that conceived and chased flawed strategies. These two companies did not fail because the printing industry is bad, because the companies they acquired are bad or because the roll-up concept is flawed. They failed for the number one reason that most companies fail—lousy management.
 

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