Your Business: What’s It Worth to You?
As we’ve seen more than once in recent years, well-off political figures can embarrass themselves when they give mushy answers to questions about how much personal wealth they actually have. The printing business, thankfully, doesn’t bear much resemblance to politics. All the same, you shouldn’t think about “campaigning” in the M&A marketplace unless, and until, you have a firm handle on your company’s valuation.
If you haven’t performed a valuation recently—or if you have never established a valuation at all—you have plenty of company. Most printing business owners do not know precisely what their firms would fetch in a sale or how credible they would be to lenders in an attempt to borrow capital for an acquisition. Why bother doing a valuation, the reasoning goes, if the owner isn’t thinking about selling the company or buying another one?
One answer is that because M&A opportunities can strike at any time, every owner should be proactively armed with this information. Another is that a professionally executed, annually updated valuation is a powerful tool for strategic management. It pinpoints ways to increase company value as it simultaneously roots out problems that could cause a company to lose value.
New Direction Partners has performed more valuations in the printing industry than any other consultancy, and that experience has taught us to identify a number of factors that enhance a company’s value. These include:
- the existence of a solid business plan, as covered by NDP’s Tom Williams in his recent post on the subject
- profitable revenue growth
- strong cash position and good quarterly cash generation
- high EBITDA (earnings before interest, taxes, depreciation and amortization)
- little debt
- horizontal and vertical market penetration, with an emphasis on fast-growing markets like digital print, color, wide-format, and solutions for digital books and photo products
- strong growth from existing customers and an equally strong prospect list
- a capable and stable management team
In contrast, valuation suffers when there is:
- no revenue growth, or in the worst case, declining revenue
- low or negative profit
- a high percentage of revenue concentrated with one customer or a few customers
- a weak management team and/or weak management processes
Most valuations are done using either of two methodologies: EBITDA multiple or net assets. For companies with strong EBITDA, EBITDA multiple yields the highest valuation. Valuation by net assets (accounts receivable, inventory, plant and equipment, and goodwill) is for less profitable businesses and for those acquired in tuck-ins. (NDP’s Paul Reilly and Peter Schaefer address the methodologies in detail in this article.)
If the decision to buy or be acquired is the egg that comes before the chicken, a professional valuation is the first peck at the shell. Even if you are not M&A-minded at this point in time, finding out how closely your business corresponds to the positive checklist above will put you in better shape to proceed when the time arrives.
You’ve worked hard to build the value that your printing business represents. Now, underscore it by contacting us at NDP. We’ll help you measure your valuation so that you can present it, in clear and convincing terms, to all the key players you’ll be dealing with in your M&A endeavors.
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 email@example.com.