Pride, and Why Dealmakers Shouldn’t Give Into It

Try Googling “quotes about pride,” and you’ll be treated to literally thousands of them—it’s amazing to see how many angles there can be to a basic human trait that we all share. But, the English writer John Ruskin may have put it best in the sense that sometimes applies to mergers and acquisitions in the printing industry. “In general,” Ruskin tells us, “pride is at the bottom of all great mistakes.”

If a printer can make a greater mistake than shutting down the business instead of keeping it going through a sale structured as a tuck-in, I personally don’t know what it is. A shutdown is exactly that: a permanent cessation of production, employment, and customer support. A tuck-in, on the other hand, keeps presses rolling, preserves at least some if not all jobs, and doesn’t leave loyal accounts in the lurch. Less altruistically, the tuck-in seller gets a better payout with royalties earned over time than the seller who just closes his doors and tries to collect what he can in a one-time liquidation of plant and equipment.

Why then do some printers who could do tuck-ins prefer to take the dead-end route? Usually, it’s because selling to a competitor is regarded as an admission of failure—an outcome that the owner doesn’t want to see as the culmination of years of effort spent in building the business. But, if fear of failure is what’s driving the decision, shouldn’t the fear of failing to rescue a salvageable enterprise in a tuck-in be even stronger? It would be, if the “sin of pride” weren’t getting in the way of forming a sensible exit strategy.

In closely held printing businesses, pride can be a family affair as the various shareholders confront the fact that the only way to perpetuate the company is to let another company absorb its customer accounts and other assets in a tuck-in. Second- and third-generation owners naturally feel the weight of the past upon them in making the choice. In all cases, it’s probably the most stressful and emotionally fraught business decision a seller will have to face.

Paul Reilly, partner at New Direction Partners, has been in the industry for over 30 years and for the last eight years has been providing investment banking and financial advisory services for privately held and family-owned businesses. He brings supplier experience as a senior executive at Polychrome, now part of Kodak, a worldwide supplier of printing and packaging supplies. He also brings extensive acquisition experience as CEO of Cenveo, one of the industry most active acquirers.
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