Industry M&A Activity : Deals Are in Full Bloom
Cronin expects asset sales to account for a lion’s share of the deals that will take place during the next 12 months. He believes the market has not rebounded to a level that would encourage rollups of medium-sized performers. Asset purchases are the ideal avenue toward filling out existing capacity.
Like Hyde, Cronin feels the best candidates for acquisition are those printers who serve the pharmaceutical and health care verticals. Having equipment that speaks to packaging and plastics can only strengthen your cause, he adds. On the other end of the spectrum, he notes that many companies wait too long to do a transaction, eliminating too many options.
Looking ahead, deal structure is a major variable in the M&A game, with financing a tough nut to crack in dealing with a banking community that does not look upon printing favorably. The road to closing remains a rocky one, according to Cronin.
“Many deals are being done as recapitalizations, earnouts, owner financing or another creative structure,” he says. “For companies with significant banking issues, it is a big unknown as to who controls the sell decision—is it the owner or the bank? Some owners start making calls to competitors and suppliers about selling their company without enough knowledge of the process, destroying their image and value before they even get started. Thus, we have a greater number of issues these days before we reach a closing.”
From the printer side, Jim Cohen—executive vice president of mergers and acquisitions at Houston-based Consolidated Graphics (CGX)—feels overall activity during the past 12 months has declined. Many of the businesses that survived the recession are hanging on and hoping to improve their financial results before trying to sell, Cohen notes, while others have not recalibrated their valuation expectations to meet post-recession realities. A third group, the owners of distressed companies, are either holding off because their banks have thrown them a lifeline or they have thrown in the towel without fully exploring opportunities to sell.