Compass Report--The State of M&A

So, if we don't know our story, Wall Street can't either. However, it does know when a company is de-listed after its stock drops a precipitous 85 percent in one year and it fails to make its earnings consensus estimate for three straight quarters. It does know when two of the most visible consolidators fail to make consensus estimates for two quarters running.

On the other hand, the news is good. Many segments of the printing industry are growing faster than the GDP and the Internet is generating new print sales. Internet companies have become the darlings of the printing industry rather than a competitive threat. Leaf through any national magazine and count the dotcom ads that were non-existent one year ago. Drive along any expressway and count the dotcom billboards. Order anything on the Internet and examine all the printed material in the box and how much direct mail follows.

The window of opportunity for sellers in the printing industry began to close during 1999. Once wide open in 1997, the window of sales opportunity began to descend slowly in late 1998. Although still partially open, the window shows no sign of reversing its descent and has been stuck since late January 2000.

From 1997 to 1998, the open window admitted mosquitoes, roaches and butterflies. In 2000, the window of opportunity for selling is open only to butterflies. The window will accommodate only high-performance companies with superior managers who wish to stay on duty.

In most instances, these companies must have sales in excess of $10 million and EBITDA margins well north of 10 percent. Preferably, these companies should have a top and bottom line growth plan, and managers who can explain it. The equipment should be reasonably new and there should be no major capital expenditures on the near-term horizon. The sign on the consolidation window reads, "We buy no futures. Turnarounds and workouts not admitted."