The Deadly Law of Inflation and M&A on Steroids
Although I have written about this a few years ago, I am compelled to do it again. I think too many of us in this industry are lulled into thinking that because we have had relatively low inflation in the past decade, that it does not have an impact. Wrong! Dr. Joe Webb is one of few who writes about this and is passionate about it. He is spot on. One of his recent writings uses the example that even if inflation is only 2 percent per year since 2004, it would equate to a 20 percent decline if your sales were flat for the last 10 years.
Why should you care?
Many firms have had a double “whammy.” On average, most firms took more than a 20 percent hit in sales during the recession that started in 2007, and most have not recovered it. In past recessions, the industry bounced back to pre-recession levels. Not this time. And, if you add the impact of inflation, many, if not most, firms are facing 30 to 40 percent lower sales in real dollars. No wonder industry consolidation is continuing at lightning speed. You simply can’t sustain a viable business if you continue to shrink in real inflation adjusted dollars.
What do we do about it?
The answer, of course, is that we must find a way to grow sales. Most have been trying their best, but only a few are succeeding, at least in terms of inflation adjusted dollars. If growth that outpaces inflation does not happen, the best route to take is to consolidate with another firm. “Merge” is a kinder word than “acquire” or “be acquired.” Whatever you call it, this is the only viable route for many firms. At Alliance Franchise Brands, we have found that merger and acquisition activity is running at a much faster pace this year than last year. We have already helped our franchise members acquire more independent printers in the first four months than in the first half of last year. If you don’t have a franchise to help you, find some who can. Check out the M&A blog on this site, and you will find pros that can help. Many times they specialize in larger commercial firms. If you can’t find help contact me, and I can point you to some resources for smaller firms.