How Printers Are Looking Good to Investors and Why
Sometimes, it’s helpful to be shocked. I was speaking just the other day with a consolidator—a dealmaker within our industry who has done a number of significant acquisitions and who knows the territory as well as anyone. When I remarked that he was now competing with private equity investors for the printing companies he had his eye on, he was flabbergasted. Packaging firms, this he could understand—but since when were mainstream printing businesses so attractive to the private players?
The answer is that private equity investors get what’s been driving the recent rise in multiples of EBITDA in the sales of printing companies. They like what they see, and as long as the picture continues to please them, that’s very good news for owners who are thinking about selling.
The private players know, for one thing, that printing companies usually have plenty of assets to borrow against in order to finance transactions. But, what most strongly motivates them is their perception that the printing industry is in transition from something unexciting to something with compelling investment potential. They know that the printing companies that have survived are the ones taking steps to transform themselves into providers of multichannel communication services. To a forward-looking investor, a company doing that is a company ripe to be acquired.
They’re also keeping tabs on the EBITDA multiples of publicly traded printing companies, since those numbers tend to set the ceiling for multiples in their purchases of closely held firms. A publicly held company generally would not want to acquire a company with an EBITDA multiple higher than its own, since this might result in a dilutive (money-losing) transaction. In an accretive (profit making) transaction, the buyer’s multiple is the higher of the two. As multiples for buyers climb higher, there’s more room for sellers’ multiples to rise and still permit accretive deals. In many cases, this is precisely what they do.
Perhaps a bit easier to grasp is the fact that macroeconomic indicators are more positive than they have been in a long time. Consumer confidence is up, interest rates for borrowers are at near historic lows, and banks are readier to lend. To a private equity player with sights set on a progressive, well managed printing business, it’s icing on the investment cake.
The only downside to this upbeat story is that it won’t last. The comparison isn’t exact, but when I think about today, I can’t help also thinking about 2009 and all the printing company owners who could have sold at that peak moment in time, but didn’t. When their M&A market vanished, it stayed gone for several years. Now that it’s back, I would be sorry to see owners who currently are riding high miss the train in the same way.
Recommendations? If you have reached a decision to sell, don’t delay setting the process in motion. If selling isn’t yet a step you’re ready to take, keep building your business in ways that will bring you to the attention of the private equity players. They’re attracted to companies that show they aren’t afraid to make the investments that set them apart as leaders of the positive change the industry is undergoing. Earn that distinction for your business, and don’t be surprised when the buyers come calling.
Peter Schaefer, partner at New Direction Partners, is an experienced dealmaker with more than 25 years of investment banking and valuation experience, 20 of which has been focused exclusively on the printing and packaging industries. He has closed more than one hundred transactions in virtually every segment of the printing and packaging industries. In addition, he has performed hundreds of valuations for ESOPs, estate and gift tax planning and strategic planning purposes. Contact him at (610) 230-0635, ext. 701.