More on M&A on Steroids
In the last blog, I talked about the “Deadly Law of Inflation” and the toll it has taken on our industry. In my opinion, it has also caused merger and acquisition activity to accelerate as though on steroids. Through our own MatchMaker program, we have matched more than 50 independent printers and sign companies with buyers. And we have helped our franchise members acquire more than 250 independent printers.
At the risk of repetition, I am including part of a blog I wrote a few years ago that gives some advice on how to successfully merge two firms. At the time, I asked one of our M&A managers to name the top 10 needs to ensure a successful purchase/sale and transition. They are just as—if not more—valid in today’s climate. Here they are, in no particular order:
- Seller carry back. Minimum 20 percent, preferably 33-50 percent.
- A fair sale price. The price needs to be fair to both buyer and seller, although in some cases, it can be nearer the high or low end of a “fair value range” depending on the seller’s motivation.
- The seller should provide 60-90 days of new owner training. You don’t have to work them like a dog, but 30-35 hours per week seems fair. At a minimum, this should include one to three trips to the top 25 to 50 customers.
- A complete list of the top 25 to 50 customers, including names or some other identifiable notation, industry, sales history and a brief synopsis (both positive and negative details) prior to opening.
- Employment contracts with any key employees. This is more important for larger shops with general managers and/or key salespeople.
- A complete list of all vendors, including contact names, addresses, phone numbers, customer numbers and a brief description of what service or product each supplies. This should include but not be limited to leases, utilities and service contracts. This step will aid in transitioning the vendors to the new company and will negate any product delays due to lack of credit application or new customer information.
- A confidential list of all employees that includes pay rate, length of service and an honest, comprehensive evaluation. Not all (maybe none) employees will be perfect. Knowing their strengths and weaknesses going in can save valuable time and money.
- In advance, obtain a copy of the seller’s pricing system for both offset and digital printing. This should include any special pricing contracts for specific companies and/or organizations/nonprofits. If no computer system is available, samples of old invoices with details will have to suffice.
- A buyer that likes and “gets along” well with the seller and vice versa.
- If he or she qualifies, the buyer can take advantage of financing from the bank, a Small Business Administration loan and/or other external seller financing with terms that provide debt service and cash flow that the business can afford.
This list could be longer, but it does a pretty good job of identifying the items that are critical to success for the new buyer and a fair deal for the seller that will allow the business he/she created to continue to be successful.