From ‘Virtually Worthless’ to Richly Rewarding

A sale of a business that goes from the buyer’s first introduction to the seller, to a signed letter of intent in just six days? It isn’t a typical deal, but we had one that actually unfolded that way. This is its story.

It begins with another sale: that of a heavily indebted flexible packaging company on the verge of bankruptcy. The owner, an inactive investor, focused only on top-line results and didn’t pay sufficient attention to bottom-line margins. As a result, profitability had dwindled to a point where the business was virtually worthless.

But the buyers saw something more.

They were a pair of very young, very high-energy entrepreneurs, and this was their first venture in the printing and packaging industry. They convinced the selling owner to enter an informal “sweat equity” arrangement that would give them ownership of the company in return for turning the business around to pay down its debts. That is exactly what they proceeded to do.

By dint of disciplined cost-cutting, a “whatever it takes” commitment to customer care, great salesmanship, and ferociously hard work, the partners brought the business back from the dead within their first year of ownership. By the time we met them, the company had been generating phenomenal organic growth — more than 50% — for almost four years in a row.

The partners continued to grow revenue, earnings, and EBITDA margin until they realized taking the business to a level higher than the one they had already reached was something they couldn’t do alone.

They wanted to be actively mentored by industry veterans, and they were willing to do it by selling the company — now under a new name and handsomely profitable — in an arrangement that would let them stay on in management roles. They engaged New Direction Partners to bring the company to market, and we began identifying prospective buyers.

A famous consolidator of printing companies used to say: “If you’re under 40 or over 70, you’re not a seller of your business.” Our clients were in their 20s, so what this translated into was uncertainty about their true willingness to sell a company that was performing so exceptionally well. Some also questioned their commitment to staying on post-sale.

But we persisted and eventually found a strategic buyer that wasn’t troubled by these needless concerns. This new buyer made an attractive offer, and the transaction moved into the due diligence stage.

Just as the transaction was about to close, the buyer decided the deal was off for reasons having nothing to do with misgivings about the sellers. Our clients were understandably disappointed, and at a setback like this, other sellers might have thrown in the towel. Nevertheless, our clients told us their motivations for selling hadn’t changed, and they wanted the search to continue.

The next day — a Saturday — a former selling client of ours called us to say his non-compete agreement with his buyer had expired, and he and his partner wanted to get back in the game and buy a business. When we described what our young entrepreneurs had built, he responded, “Can we visit the company on Monday?” That certainly was arranged, and by that Friday, we had a signed letter of intent in hand.

Our former client and his partner had many years between them of running successful businesses, and they turned out to be exactly the kind of mentors our sellers were looking for. The four-way partnership came to full fruition three years later when a financial buyer acquired the company in a rollup for a sky-high multiple of EBITDA.

Because our two young sellers had retained an ownership stake as part of the deal with our former client and his partner, the reward they reaped was very significant. They have since moved on to entrepreneurial opportunities outside the printing and packaging industry. However, their experience highlights a couple of important points for other printing and packaging business owners wishing to buy or sell.

The first point, brought home by the details of the initial acquisition, is that there are alternatives to bankruptcy for businesses in dire financial straits. Our buyers, determined to resurrect a company in which they saw potential, proposed a deal that let the seller exit ownership without carrying a record of unsettled debt — something he wouldn’t have accomplished by filing for bankruptcy.

The point illustrated by the resale to our former clients is that there’s no substitute for solid industry connections when positioning a company to be acquired. That perfectly timed phone call wasn’t an accident. It was the product of a well-established client/adviser relationship, and it worked to the great advantage of everyone involved — both then and a few years down the road.

The speed of the deal may have been unusual. However, the personal ties that brought it about will always be fundamental to the success of buyers and sellers in the printing and packaging space.