With Our 'Complements'
In the first part of this discussion about what motivates owners of print and packaging companies in transacting mergers and acquisitions, we noted that every buyer and seller needs to have a clearly defined “why” in mind whether a deal is on the horizon or not. Now, let’s address what drives the thinking of buyers who are actively pursuing acquisitions. What, in their view, makes another company an "ideal" candidate for an offer to buy?
Most basically, acquisition-minded firms are looking for ways to regain ground they lost in the tough years of recession after 2008. Some may be trying to build up their intellectual capital (internal talent) or solve problems of succession. But the advantage that every buyer hopes to gain is complementarity. This is achieved by acquiring a set of production capabilities and market penetrations that don’t significantly overlap with the buyer’s. It creates a greater-than-the-sum-of-the-parts relationship that enables both parties to combine their strengths in the most efficient and profitable way.
Complementary acquisitions diversify—and in the print and packaging industries today, diversification is a must-have ingredient for survival and growth. In my hometown, a printer in business for over 30 years has spent the last five of them acquiring companies with capabilities his firm didn’t have. He’s doing well, and his salespeople are confident in the knowledge that the plant can now produce almost anything they can quote—a competitive edge they didn’t have only a few short years ago.
In M&As where the parties are similar in size, profile, and geographic market, the buyer typically doesn’t retain 100 percent of the sales revenue of the acquired company. But, when the absorption of a $5 million company by a $10 million company brings new, non-overlapping elements and capabilities into the picture, the result could be a firm that is soon able to generate $17 or $18 million in revenue. That’s the value-adding power of complementarity at work.