Business Plans: SOP for M&As
Fail to plan, plan to fail. It’s a well-worn management cliché, but it still has something urgent to say to us in the context of mergers and acquisitions.
A business plan is a corporate vision quest in writing: a road map that declares strategic goals, sets financial targets, and establishes a timeline for achieving both. A formal business plan is the hallmark of a well-run printing company. It’s also a document that must be in place if the owner intends to grow the company by acquisition or position it for a profitable sale.
A business plan articulates what you want to do with your company and how you mean to accomplish it. Boiled down to basics, it’s a forecast that pinpoints your anticipated sources of revenue growth over the next three years: from organic sales increases, the addition of new capabilities, an expansion of the sales force, entry into new markets, and so on. You keep the financial projections real by periodically revisiting the plan and course-correcting it as needed.
Drawing up and sticking to a business plan takes discipline, but all of us rely on that in our personal and professional lives. If you’re a golfer, your aim is to shave a specific number of strokes from your handicap by the end of the season. As a print company owner following a business plan, your numerical goal might be to go from $5 million in sales now to $7 million this time next year. Your plan guides you to achieving the increase with milestones and deadlines that make the goal attainable.
It’s possible to muddle along without a written business plan, and unfortunately, that’s what many printing companies do. But, at the M&A stage—a stage that New Direction Partners believes all printing companies will reach eventually—the absence of a business plan makes it all but impossible to move forward with a deal.
A written business plan is the first thing that a prospective buyer will want a seller to produce—if not at the first meeting, certainly by the time that a letter of intent has been drafted and due diligence is about to begin. Unless the acquiring company intends to self-fund the purchase, the buyer will have to arrange a loan from a bank or another source of capital. As every printer who has ever dealt with a lender knows, the loan won’t happen without the assurance and justification that only the borrower’s written business plan can provide.
It’s sometimes objected that the industry is moving too fast or too unpredictably for the three-year time frame that most business plans are built upon. These days, who can see clearly that far ahead? This, in my opinion, is a pretty weak excuse for not having a business plan. Nobody is clairvoyant, but a good business plan is like a compass in a fog: it always keeps you heading in the right direction. You can update it—I recommend doing this quarterly—to adjust for changed circumstances and new opportunities.
If your M&A ambition is to grow by purchasing other companies, your business plan should include either a list of acquisition targets or a detailed profile of the kinds of companies that would be a good fit. A seller’s plan may include the assumption that you will remain with the company post-sale in a management role for a certain number of years; or that you simply will retire from the business after an orderly transition. In both cases, carefully constructed financial projections are a must. Engage your controller or CFO, your sales director, your plant manager, and other key personnel in the plan-writing process so that the final document reflects the wisdom of all of these stakeholders.
Then your plan will be a reliable enabler of whatever type of M&A transaction you have in mind. I’m currently advising a seller who has carried out his planning to a T, and that’s a good thing—his buyers are private equity investors who analyze numbers to death. But, the negotiations are going well precisely because my client has given them plenty of projectable numbers to work with. In those numbers, the buyers are seeing the growth prospects they want to see in support of the investment opportunity they believe this company represents.
That’s how it can be for your company when it’s your time to enter the M&A marketplace. You planned it, and now you’re doing it—and you know that the story has a happy and satisfying ending.
About New Direction Partners
New Direction Partners (NDP) is the print and graphic communications industry’s leading provider of advisory services for firms seeking growth and opportunity through mergers and acquisitions. NDP assists its clients by giving them expert guidance and peace of mind at every stage of the process of buying or selling a printing company. Services include representing selling shareholders; acquisition searches; valuation; capital formation and financing; and strategic planning. NDP’s partners have participated in more than 300 mergers and acquisitions since 1979. Collectively they possess over 200 years of industry experience with transactions in aggregate exceeding $2 billion.
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