For a long time now, the U.S. Army has been recruiting volunteers with the slogan, "Army Strong." It’s a message to our young men and women that they can grow in strength, skill, and character if they’re willing to become part of something larger than themselves. As the Army gets bigger and better, so do they.
When we speak of M&As in the printing and packaging industry, the thinking behind "Army Strong" should remind us that growth by acquisition can be a strategy for sellers, as well as for buyers. Selling a company as a going concern to a carefully vetted purchaser lets the seller maintain its identity, expand its capabilities, and broaden its footprint. The opportunity isn’t available to every seller, but for those in the right circumstances, it can be a straight-line path to the next level.
Take a current situation of mine, which involves a fast-growing company whose owner wants the firm to be acquired by a larger counterpart in another region. The owner’s objective is to get wider geographical distribution for his products while retaining his existing factory and workforce. He also wants to be an active part of the senior management team of the company that acquires his business.
Possible? Yes, very much so. This is a highly profitable company, financially healthy and expanding on its own in an attractive niche. It should be an excellent fit for a buyer that wants to capture these assets along with the exposure it will gain for its own business in the seller’s territory.
As noted, we are talking about a sale as a going concern here—not a tuck-in, in which only the seller’s accounts would be absorbed. This means that in the type of transaction this company aspires to, the pool of eligible acquirers will be smaller than it would be if the deal were structured as a tuck-in or marketed to non-strategic private equity firms. In this case, we’ve identified a large pool of potential strategic investors who would view this firm as very attractive.
Therefore, we are confident that several qualified potential acquirers can be found. What this seller then must do, with the help of New Direction Partners, is to perform due diligence on the prospective buyers as carefully as they will carry it out on the seller.
The first criterion will be financial strength. Does the buyer have or can it assemble the resources needed to fund the transaction? Can it support the cost of integration now, as well as the cost of investing in new capabilities later on?
What about respective operating styles and business cultures? Personnel policies and sales management? Customer service practices and marketing strategies? Do they mesh? In a sale as a going concern, they will have to—this isn’t a tuck-in, where the parties have the luxury of not needing to come to grips with these sensitive issues.
When the dealmaking commences, the scrutiny will be close on both sides. The process will be beneficial to both sides as they discover one another’s strengths. It will conclude, I’m confident, in a genuine greater-than-the-sum-of-the-parts outcome for this company and the purchaser best equipped to be its partner. At the end of the day, growth is growth from whichever side of the transaction you view it.
About New Direction Partners
New Direction Partners (NDP) is the print and graphic communications industry’s leading provider of advisory services for firms seeking growth and opportunity through mergers and acquisitions. NDP assists its clients by giving them expert guidance and peace of mind at every stage of the process of buying or selling a printing company. Services include representing selling shareholders; acquisition searches; valuation; capital formation and financing; and strategic planning. NDP’s partners have participated in more than 300 mergers and acquisitions since 1979. Collectively they possess over 200 years of industry experience with transactions in aggregate exceeding $2 billion.
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