***Advertisement: Ascent Partners 6 October 2010***
Q4: Why do you think that goodwill sales will become more commonplace in the printing industry?
Answer: I think we’re seeing a major change in our industry, and for traditional commercial offset printers the major demand is for client lists, not the complete business along with staff, plant and equipment and premises.
Of the purchasers I have registered on my books 80% want me to notify them of when a suitable client list becomes available. The reason for this is that the vast majority of purchasers of printeries are from the trade. And these purchasers already have underutilised plant and equipment. They don’t want the majority of plant and equipment the vendor has. This is especially the case for older equipment.
There are however three major markets for complete “going concern” commercial offset printing business:
A. “Fresh starts” wanting to establish a business. This may be a where a print salesman gets the entrepreneurial spirit and wants to drop his sales in to business which has underutilised equipment. Primarily due to the lack of start up funds, this “fresh start” purchaser is usually seeking small businesses. But even then they don’t want to start with older equipment, and more commonly they want digital as the major component
B. When a purchaser wants an interstate presence. I have firms wanting to do just that. But here it usually an A2 or A1 business, with relatively up to date equipment and usually with someone to manage that business on their behalf
C. Management buyouts. The issue here is usually lack of funds, however this can be a great option for the vendor given some forethought.
There is also a market for overseas purchasers wanting to buy a business and obtain Australian residency. There are some business brokers seeking vendors to list their business with them quoting that they have cashed up eager buyers. Whilst this may sound convincing many of these brokers want a lot of money up front to advertise, and provide little in return (the sceptic in me says their real objective is to sell advertising space)
Others ask for financials and then make an attractive offer, only to then ask for the vendor to draw up contracts in Mandarin (for Asian buyers) and English. Many of these deals have fallen over when it comes time to put down a deposit, or the Australian Government seeks to find out their source of funds.
I have however seen some vendors succeed in selling to overseas purchasers, but rarely have I seen that purchaser succeed in running the business.
I’d suggest if you go down the overseas buyers route, you proceed with caution, and do some research into whether it could be feasible.
So these markets for complete going concern business sales are relatively small. If I were to venture a guess, I’d say the methods of exit for offset commercial printeries in the next 12 months would be
• 25% will go down the administration / liquidation / close the doors route
• 20% will be successful in sale of the complete business as a going concern
• 50% will sell goodwill, some plant and equipment to a purchaser, along with some staff, and dispose of the rest via other methods (private sale or auction)
What I’m referring to above is the method of exit for the proprietor. Obviously there are other methods, often far superior to the above, to transition out of the business over time.
It’s interesting that the first group may never realise the value of their goodwill. More importantly the creditors of these liquidated firms never see this value. I recently spoke to a vendor who sold his goodwill before entering the liquidation. He put the proceeds of the sale of this goodwill to pay out staff. In most cases goodwill is worth more when the business is trading normally and not under administration, so this process (sale of goodwill before administration), should be a consideration for most – obviously legal advice should be taken as to what can and can’t be done, but in principle, my take is that if it returns more to the creditors, it’s a good thing.
You may argue the toss over these percentages, but what vendors can’t argue is the need to pre plan their exit if they are to realise the best overall financial outcome. A good place to start is an appraisal and the development of a transition plan
Ascent Partners assists in the appraisal of print-related business, and the development of subsequent transition plans or business / goodwill sales.