This is the best time in years for printers looking to exit the industry with plenty of buyers eager to engage. The value of existing businesses is rising as concerns see acquisition as a viable growth strategy. Richard Rasmussen explores the market and gives it the thumbs up.
There are far more active business buyers in the market than in the past ten years. As an industry specialist, acting for buyers and sellers of businesses, I can confirm the pendulum is swing to an equal number of buyers and sellers for the first time in years. Strong buyers are regarding acquisitions as an integral part of their business strategy to help grow sales, gain quality staff and systems, acquire updated equipment and diversify.
I think the added interest has come about for a two major reasons:
- Fast return - businesses are relatively cheap to buy compared to previous years – multiples have come down to a level where the ROI is very good for the buyer. And, even though the price of client lists has gone up, they still provide a great opportunity to get a very good return.
- Sound business strategy - business acquisition as a strategy to buy sales, perhaps beef up production equipment, obtain good staff, perhaps diversify, makes sense to those wishing to stay in the game and grow. If the market for print is getting smaller, then industry consolidation is the main way for those remaining to keep or grow sales.
Currently I have an equal number of engagements on the buy and on the sell side. Five years ago that ratio was 5:1.
What are the Business Buyers seeking?
1. More sales to fill their existing production capacity.
One of the key drivers is the quest to find more sales to fill the purchaser’s production capacity. Replacing lost customers or reduced volumes is hard. That stands to reason as print demand weakens.
Some have tried hiring new sales people to fill the hole, with the majority finding that strategy wholly unsuccessful. A common complaint when hiring new salespeople, is that they promise to bring in $X but when you put them on they bring in half of that, and even then the quality of clients is poor – many providing low margin, slow paying work.
From the seller’s perspective, they are often quite surprised at how much their client list is worth. In fact, due to increased demand, the price of client lists is going up. Even businesses that are not making good money (the bottom quartile of the industry), are in demand. The reason for this is that what is mostly required from these firms is the client base and the Gross Profit that the client base produces not the Net Profit. This is because most business buyers will move the business into their premises and lose a good portion of the expense – for example, they save on premise rental, some personnel costs, administration costs, and many of the other costs.
Buyers look favourably at client lists that are well spread, with no one or two clients dominating. They also look at the type of client, favouring “direct” clients over “intermediaries” such as print managers and designers. Clients with growth potential are highly considered, especially where the acquiring firm has the production capacity to sell to those clients.
2. To acquire more up to date equipment.
Many business buyers see that an easy way to upgrade equipment is to buy a business with the equipment they want. A recent enquiry I have had is where a company with two mid 90’s A2 presses wishing to purchase a business with a 5-10 year old A2 press and a client base. That is a great way to grow whilst updating equipment and perhaps reducing the number of presses required. And, as used equipment values have fallen, so too has the changeover price decreased.
3. To obtain good staff and processes
Good staff are hard to find, and business acquisition enables buyers to have access to quality staff and processes / systems. Many buyers tell me after the sale has gone through that one of the major benefits of the acquisition was the injection of new staff and systems. Existing staff are invigorated and more enthused about added work coming in and with the new ideas / processes and systems that the new business brings.
4. To diversify
I think Blue Star is a good example of this strategy – many of their acquisitions have been outside traditional offset print with the purchases of mail houses, wide format printers, creatives and data businesses.
But it’s not only the big players that are doing this – it’s also the smaller players, looking at means to diversify and expand their level of services. For example getting into wide format is a lot easier if you buy existing plant, obtain good people and systems, than perhaps buying new kit with the hope that the sales will follow.
With the past four or five years of industry consolidation, the tipping point may now have been reached, where the demand for businesses equals the supply. Whilst it’s true that many buyers don’t want the whole business, the combined value of the client bases (values increasing) and machinery may well provide the same net result.
Richard Rasmussen is the principal of national industry specialist supplier of appraisal, valuation, business acquisition and sales services, Ascent Partners. www.ascentpartners.com.au Phone 0402 021 101.