If you’ve ever sold a piece of property, you probably learned a lesson about matching your expectations about price to the rates your local real estate market would bear. It may have been your dream house, but your nostalgia for the place didn’t add any value as far as buyers were concerned. That’s why you listened when your broker told you that in order to find a buyer and close a sale, you’d want to go to market with a fair and realistic asking price.
Although selling a printing or a packaging company is more complicated than selling residential real estate, the take-away about price expectation is the same. The valuation you receive from a professional M&A adviser is based on the adviser’s deep knowledge of market conditions, buyers’ attitudes, lenders’ practices, and other factors that determine the likelihood of the deal you want to make. It’s your right to question the evaluation, of course, but in the end, resisting the adviser’s recommendation may only make your company harder to sell than it has to be.
Today’s buyers are an astute, hard-bargaining bunch, and the one you eventually sit down with could well be a veteran of multiple transactions like yours. Acting on professional advice from their own M&A consultants, these investors won’t commit time or energy to propositions that they consider overpriced. Such non-starting situations usually go nowhere in a hurry—the least desirable outcome for a seller who hopes to hand off the business with something respectable to show for all the years of effort put into it.
We tend to see the biggest lack of realism about pricing among owners of traditional commercial printing firms who haven’t specialized, whose sales are declining, and whose technical capabilities are behind the times. Sometimes, firms like these are co-owned by family members who don’t take part in the business but still have a say about how it is to be priced and sold. In such cases, even the strongest offer an M&A adviser can bring—one so good that it may be the best the business will ever attract—can fall on deaf ears if it doesn’t sound like the inflated bid that the sellers think they should be hearing.
The disagreements aren’t always about price. The stars can align around valuation and bid, only to be followed by a disconnect about how the seller will be paid. Firms like those described in the preceding paragraph often are sold as tuck-ins, a type of deal in which payout to the seller comes from the future performance of the accounts being acquired by the buyer. Sellers who won’t accept the notion of contingent payments can frustrate all parties to the deal with their insistence on cash up front.
In my experience, when differences about selling price and deal structure come up in M&A negotiations, they typically aren’t small. They can be reconciled, but doing that requires flexibility and seriousness on both sides. In M&As, learning through mistakes benefits nobody if the wisdom comes only after the deal has died. It's always better to grasp the opportunity with a clear-eyed understanding of the facts going in.
About New Direction PartnersNew 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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