You can feel it: spring finally has sprung after a winter that seemed endless. The snow and the ice are vanishing, and from what I’m seeing, so is the chilling effect that has slowed the pace of print industry mergers and acquisitions (M&As) over the last several years.
Calling the M&A market “hot to trot” would be an exaggeration at this point, but there are good reasons to think that fewer players are suffering from cold feet. Interest in transactions is picking up. Banks are more open to proposals for funding M&As. The gap between the prices sellers want and those that buyers will pay is closing. This is the thaw that dealmakers have been waiting for since the recession of 2008-2009 nearly froze M&A activity in place.
The warm feeling also is spreading to firms in the $5 million to $15 million range, a segment in which M&As sometimes can be challenging to initiate and structure. Although a company with revenues in this range might be profitable enough to justify a purchase price of $2.5 million to $5 million, its modest size may keep it from attracting the attention of national consolidators or private-equity investors from outside the industry. This certainly was the case while the worst of the recession was upon us.
Now, however, renewed confidence in print markets is encouraging these M&A opportunity-seekers to take a second look. Also seeing the green light are individuals and groups of individuals within the industry who have held onto their dreams of ownership but who, until now, have lacked the financial leverage to turn their dreams into viable deals.
I’m currently representing two buyers of this type—industry veterans with purchasing ambitions they’re prepared to fund with the cash they’ve saved after years of working for other people. That capital, together with eased restrictions on lending by the banks, is what gives printers like these a credible shot at acquiring companies of their own.
Assuming a purchase price of $2.5 million in such a deal, we’d probably expect the buyer to put 20% cash down ($500,000) and the bank to lend $1.5 million using equipment and receivables as security. The seller agrees to hold a note for the remaining $500,000—a very different arrangement from what would have been possible a few years ago, when tight credit might have obliged the seller to carry as much 50% of the purchase price. Which of the two scenarios do you think is more conducive to closing a deal?
The bigger the amount of cash sellers believe they’ll collect from buyers at closing, the stronger their motivation will be. I believe that after a long winter of financial discouragement, there’s a pent-up demand on both sides to explore deferred opportunities in M&As. Within the backlog of deals waiting to be done are transactions that all firms in the $5 million to $15 million range can study as models for planning and executing successful M&As.
What are your thoughts on the present climate for M&A dealmaking in the printing industry? I’d like to hear from you. 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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