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Printing Industry M&A Conditions Not Been This Favorable in Over Ten Years

October 30, 2017

By John E. Hyde, Esq.

John HydeHere is an alert to owners of companies in the print and graphics communications industry: M&A conditions have not been this favorable in over ten years. The huge fork in the road between “healthy” and “unhealthy” companies results in divergent interests in M&A, often with separate micro climates of activity and demand. Today is a rare period in history where nearly all companies can achieve reasonable M&A outcomes, although they are of course different based on the extent to which the seller meets certain criteria.

For healthy companies, owners can cash out with real value in a sale of the going entity.

For unhealthy companies, there are more buyers for a book of business assets than ever before, meaning, that non-bankruptcy orderly liquidation is a viable graceful exit like never before.

Simply, this incarnation of a robust M&A era represents a cross-current of major trends that have been with us for quite some time but never lined up so precisely.

First of all, there is long term fundamental erosion of the overall pie. No one can question the impact of technology and changing customer requirements and the downward spiral on pricing and revenues. In a shrinking universe, there are only two options: grow and take market share or get out while you can. Most owners have come to realize that treading water is not a long-term option, and few are sleeping well at night thinking that good times will happen on their own. Those days are over and have been for quite a while.

The successful companies that choose growth, whether for survival or prosperity or both, are eager to bring on new capabilities that diversify existing revenue streams. Some are expanding their geographic footprint. These strategic acquirers are not alone in seeking worthwhile M&A opportunities.

Printing Industry ConditionThe world of private equity has evolved into a significant force within the M&A landscape. The Target Report (www.thetargetreport.com), published by M&A advisor Mark Hahn of Graphic Arts Advisors, LLC, has covered this trend over the past few years. The private equity buyers that planted stakes in platform organizations have expanded their objectives to seek “tuck in” transactions that are critical to achieving the internal rate of return on investment capital that supports the PE world.

This means that private equity is bringing new money into the printing industry at a time when some individual owners or family businesses are shying away from further capital commitments. One of my clients said recently while lamenting a major financing initiative, “We are a printer, and we need to buy new equipment to remain viable as a printer.”

It is worth noting that what I call “hybrid” companies (creative and data driven enterprises that oh-by-the-way also print, finish, mail, and distribute) have, in some cases, expressed interest in acquiring more traditional print production capabilities through M&A than what would have been considered in the recent past. Example: a top-shelf creative and marketing services firm putting out letter of intent to acquire off-set sheet fed and digital printing company that has real manufacturing in its plant. “We may actually have to get our hands dirty,” the CEO remarked.

No status report on M&A can ignore the long-term succession challenge facing the printing industry. It is common knowledge for nearly twenty years that owners are less inclined to bring their kids into the business, or that the next generation is disinterested. This large pool of family-owned and private companies is coming off relatively decent financial results for the past several years, and they are not getting younger. Father time is catching up with many entrepreneurs who now lack the fire and brimstone to reinvent their business just one more time. For these folks, the current conditions are an ideal time to cash in chips and transition from ownership.

Another change in the marketplace is that owners of highly indebted companies (who are not willing or able to sell their business as a going entity) are more receptive than ever to engaging in non-bankruptcy orderly liquidation in connection with a sale of assets. This has long been done in the emergency room, but now is more common as a surgical means to extricate the intangible assets that are most valuable (customer relationships, key employees) assets of most companies in the print and graphic communications industry. No longer is there a stigma with the debt restructuring and settlements that go along with a transition from ownership for those who are unable to satisfy all creditors with cash at closing.

Lastly, social media has made it easier than ever to connect the dots and to open new doors between buyers and sellers. The ease of connectivity and less fear of “being seen” are positive drivers of increased activity in the marketplace.

The current M&A marketplace is uncharacteristically robust, covering nearly all segments of the industry.

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