Compass Report--The State of M&A
The buyers who hang these signs are also quick to tell you, "There are not many of us. If you want to sell and we like your company, don't tinker too much with our purchase agreement. And if we find any hair on the deal during due diligence, we will probably walk." They will quickly add, "We've got a long line of sellers and we're busy trying to fix some of the plants we bought in 1998."
The year 2000 will see even fewer deals. We predict there will be a range of 85 to 100 printing companies acquired during 2000.
There will be more mega-deals, with undervalued big companies selling to bigger companies. About four to six of these transactions will be mega-deals, with large companies acquiring other large companies. Already this year, Mail-Well (NYSE), annualizing around $2.5 billion, has announced a $334 million tender offer for American Business Products (NYSE), with 1999 sales of nearly $500 million.
Rumors are swirling about other possible transactions and it is just a matter of time before the likes of Donnelley, Moore, Standard Register, Reynolds & Reynolds or Deluxe decide to diversify into some segment of commercial printing.
Private companies will continue to throw their hats into the ring. In spite of lower values and fewer, more selective buyers, small companies will continue to hang For Sale signs during 2000. This anomaly will occur as independent owners feel the increasing press-ure of the consolidators' buying power on their margins. Consol-idator savings in purchases of consumables, equipment, benefits and the cost of capital are now ranging from 6 percent to as much as 12 percent. Small companies simply cannot find those kinds of savings.
The compelling economics of printing industry consolidation will prevail. Eventually, smart people will figure out how to capitalize on the economies of scale; manage what they acquire; and consolidate the industry in a more orderly fashion.