Ready to Sell or Not—Not!

It’s been a long road to get here, but we’ve finally arrived at a point where we can state it for the record: M&A opportunities for printing and packaging businesses are better than they’ve been in years.

EBITDA multiples—a key determinant of a company’s selling price—now range from three to five for commercial printing businesses and from six to seven-plus for packaging printers. These are big gains from where the multiples stood just 18 months ago. We’re also seeing fresh interest on the part of individual and corporate equity players who previously steered clear of any investment linked to printing.

In short, it’s a great time to sell a printing or a packaging business. But, as favorable as market conditions may be, is it your time?

The biggest underlying question is how attractive your company will be as an acquisition target, and we’ll come back to that in a moment. There are a number of other things to consider before you hang out the “for sale” sign:

Is the actual value of your company what you want it to be? A gap may exist between a seller’s expectations and the number that a formal valuation will yield. Be realistic here.

What do you intend to do with yourself after you sell? Very often, owners who have spent most of their adult lives building up a business can’t readily answer this vital personal question. Don’t proceed until you can.

Would you be willing to stay on as an employee of the new owner for a period of time? Buyers want continuity of executive management for one to three years. Is this role, would you remain comfortable playing post-sale, when you are no longer the boss?

Could you get a higher return by selling parts of the business separately as opposed to selling everything at once? Some owners find they can come out ahead by liquidating gradually: a building, an operating center, a division in another geographical area.

Does too much of your revenue come from too few accounts? Are you carrying too much debt? These financial downsides need to be addressed before they start to scare off potential buyers.

A strong market for acquisitions demands strong candidates. The larger a company is, the higher its EBITDA multiple is likely to be compared with smaller firms of its type. The greater its growth and the longer the list of vertical markets it has entered, the more credible it will be to buyers seeking proof that the company is in expansion mode, further increasing its EBITDA multiple.

It takes time to position a company for sale in this way, and the process must be a strategic one. That’s why we recommend engaging a qualified M&A advisor long before you think you will be ready to sell—in fact, several years ahead of the planned event.

Engage an M&A advisor for four reasons: (1) for a valuation of your company today; (2) for an assessment of your company’s strengths and weaknesses; (3) for development and execution of a business strategy to increase the value of your company; and (4) for the actual sale of your company.

With the advisor’s help, you can establish a practical timetable for maximizing the value of your company by driving the kinds of growth your buyer will expect to see. The advisor will perform an initial valuation of the business, determine where and how growth needs to occur, and recommend investments for achieving it within the time frame you’ve created.

Follow this plan, and the right moment for realizing your ambition will come. We’re currently working with an owner who is aiming at handing off the business three to five years from now. In the meantime, this owner intends to grow the business organically and by acquisition so that valuation and EBITDA will be where they need to be when his self-imposed deadline for making the decision arrives.

This way, instead of surrendering to the dictates of the market at some arbitrary point in time, he gets to control both the schedule and the structure of the deal he has in mind. It won’t happen overnight, but it will happen at a moment of his choosing. And if that isn’t the best definition of the right time to sell a company, we don’t know what is.

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.

For information, e-mail info@newdirectionpartners.com.