The Wisdom of New England

For many years, I had the privilege of serving in leadership positions with Printing Industries of New England (PINE), the largest printing trade association in the Northeast. Then, as now, I was greatly impressed by the resiliency of our members and their ability to adapt to changing business circumstances.

This was especially true when it came to mergers and acquisitions involving PINE member companies. The association played a matchmaking role in some of these transactions, and if the parties wanted our advice or mediation while the deals were being worked out, we were happy to offer it.

What we saw over time was a change for the better in our members’ understanding of the strategic use of M&As. By the early 2000s, many printers had realized that the industry’s shrinkage was going to be permanent and that as a result, organic growth would become increasingly hard to achieve. Owners reacted, and initially, there were missteps.

Acting on their own, some firms bought other firms without doing the kind of detailed research that professional M&A advisement provides. By the time they discovered their errors of judgment, it was too late to do anything about the poor fit.

Others resorted to the tactic of hiring salespeople away from rival companies in the hope that the reps’ accounts would come along with them. But, no matter what the salesperson may say, accounts snared in this way often turn out to be “stickier” to the source than the acquirer has been led to believe.

Owners eventually began to see that there was a better way. As proprietors, in many cases, of small firms, they were not in a position to acquire other companies as going concerns with plant, equipment, and workforces intact. Deals structured as tuck-ins, on the other hand, could give them exactly what they needed: a full book of active accounts to fold smoothly and profitably into the existing business without the burden of taking on the acquired company’s physical assets.

Sellers’ appreciation of the opportunity presented by tuck-ins has evolved as well. For the owner of a printing company near the end of its life cycle, acquisition by tuck-in can be an ideal exit strategy — a much more advantageous outcome than just liquidating the business and shutting the doors. There could even be ongoing roles for ex-owners and key employees, as tuck-ins often require sellers and essential staff to stay on in management capacities for a period of time to assure a problem-free transition.

This was the sort of progress that many PINE members made as they came to the moment of truth about the future of their businesses. In the industry as a whole, there is room for more of the same kind of enlightenment about the value of professionally guided M&As.

For the last two years, M&A activity in the printing industry has been intense. The dealmaking pace is good for everyone, but we have come to a point where there are more buyers eager to buy than there are sellers willing to sell.

In too many cases, owners are holding out for higher prices than the state of their businesses can justify. They may also need to learn that in a tuck-in, compensation usually has two parts: cash at closing for working capital and selected equipment; and payment over time from transferred sales generated by the acquired accounts.

I know from personal experience at PINE that hurdles like these can be overcome and that for every owner, there is a path to a transaction that will bring growth for the buyer and appropriate compensation for the seller. At New Direction Partners, our advice always is that the sooner the path is taken, the more rewarding the trip to the destination will be.