As advisers to printers and packagers in mergers and acquisitions, we at New Direction Partners like to stress the advantages of growth by that route. Over time, it becomes more practical to grow by acquiring other companies than by expanding the core business—that’s only natural in a mature, consolidating industry.
But, some of our clients are happily excepting themselves from the rule by growing organically at rapid clips while others in their segments have plateaued. Their strategy is specialization, and it applies whether a company is pursuing M&A opportunities or focusing on building up the existing base.
These clients understand that today, and particularly in printing, survival increasingly is about differentiation—finding ways to stay out of the commodity trap and its obsessive concern with pricing. The escape path usually is found through cultivating a niche that outflanks the competition with services that customers can’t easily obtain elsewhere. This almost always means making an investment in distinctive technical capabilities, as it’s no longer possible to differentiate a company just on the basis of product quality or timeliness of delivery.
Done correctly, specialization acts on printing/packaging companies the way growth hormones act on humans. I’m currently working with a book printer who was an early adopter of a non-lithographic production method. That end of his business is expanding at about 20 percent per year while much of the rest of the book printing segment creeps along with considerably less growth. Another client, specializing in flexible packaging, posts 40 percent annual growth—impressive even in the thriving packaging sector.
If you look at a well-managed company with rising revenues and healthy margins, you probably will find that some of the prosperity comes from organic growth in a well-chosen niche. On the commercial side, we see it in firms offering proprietary, IT-based solutions and services that move them away from the kinds of transactional printing that most commercial printers depend upon. Among package producers, those specializing in labels, pharmaceutical packaging, and folding cartons are doing particularly well.
Organic growth is a good thing for its own sake, of course, but it also becomes an undeniable sweetener when a company is ready to begin thinking about M&As. Another of my clients is a general commercial printer who wants to sell but whose business, frankly, is struggling. Ordinarily, a company like this one wouldn’t have much appeal as an acquisition target. However, the business includes an IT-based specialty that’s flourishing in spite of the poor bottom line. That’s enabled us to generate substantial interest in the company among buyers who want to acquire the specialty for themselves.
Today, growth can’t be decoupled from this kind of differentiation—to have one, you must first achieve the other. In its June Flash Report
on the industry’s economic footprint and outlook, Printing Industries of America speaks of “a new print-plus business” where the action is in specialties such as print that provides logistics to manufactured products (packaging, labels, wrappers, and product user manuals).
“Aggressively look for opportunities in new niches, new geographic areas, new services or products, or new customers,” counsels PIA. “In a zero-sum industry like print, there are only two sources of sales growth—increased market share or capitalizing on these types of new opportunities.”
So, never give up hope of organic growth, even if it has been a long time since you last diversified your product and service offerings. To accomplish it, do your homework and find a way to set yourself apart from the competition. And, if you’re tempted just to shrug and say, “What’s the difference?”, remember: it makes all the difference in the world.
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.