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PE: A Promise or a Threat?
By Noel Ward, Editor@Large
Tuesday afternoon you take a call over the land line. Expressing what seems like genuine interest in your business, the caller wants to schedule a meeting. Sounds as if there might be an offer in the works. Figuring that could scratch an itch you think, “why not,” and set a breakfast meeting for Friday morning. Plus, you can hit the golf course afterwards and see if you can make it to the green on hole 6 in two strokes. Like your pal Harry does all the time.
The meeting wrapped with compelling numbers that left a few things running through your brain. The business is doing well but selling it would sure make writing checks for the kids’ college tuition easier. They guy you met with said if you stayed on for a year as a contractor your monthly check could double or triple as part of the buy-out. Your team could keep their jobs. Then there’s those six acres on the lake. Putting a new house on it would be a lot easier with some extra cash. Having a few bucks would also help get your side hustle of old car restoration out of first gear. Your wife would like it too. And it’d be a great start to knocking a few strokes off your golf game.
PE
The buyer is a private equity (PE) group that already owns half a dozen printers and is looking for more opportunity in the highly-fragmented printing market. A few other shops in your state may also be part of this. You know a PE deal worked pretty well for some other printers you know. Still you worry. The investors have the general experience to take over your shop. It sounds as if they would treat your customers well. They may even keep you and your team on board while they get established. This sounds like it could be a pretty good wrap on 41years. Hmmm.
Seeing the consolidation in our industry I wanted to gather some info for printers deciding whether to keep going or opt for the take-the-money-and-run choice. Far from having any expertise on things financial I started by calling Roger. Roger Gimbel is CEO of Gimbel and Associates, a print-industry consulting firm that arose after a PE deal pulled him away from his long career as a commercial printer in New York City. Then I called Peter Schaeffer, founder of New Direction Partners (NDP), a leading merger and acquisition (M&A) firm in the print industry. If you are thinking about selling, merging or acquiring, talk to Peter.
Two flavors
Schaefer described two flavors of private equity, Financial and Strategic. These help define the parties that are interested, closely followed by the Haves and Have Nots, which define the printer(s) involved.
A Financial deal is pretty much all money: It’s a group of investors seeking to buy a company for resale it and make money off the deal. A Strategic one sees your company’s value as one of several other printing companies it has acquired or is acquiring. They think adding your company would make the firms they already have more profitable now, and collectively when sold. He said the new ownership may rename your shop under one brand or keep the name you have always used. You wouldn’t have a say in this. Although it may not always make a practical difference, you should find out whether the PE deal is Financial or Strategic early on. Either way, it may make the terms of a deal more amenable to you
Shaefer told me it’s worth noting that Financial buyers may be more inclined to keep you or your team around for a specified period because while this is just a business deal, they may want some skin in the game—people customer know who have some expertise. It’s important to realize this can make the sale of your business more attractive because the buyer(s) may have no knowledge of the printing business, especially customers and markets. This means your expertise and tribal knowledge of customers and your market has value in the deal. In contrast, a Strategic buyer maybe able to replace key staff or even an owner relatively easily because they may have other printing firms to draw from.
Such distinctions can be important because selling your business is about more than pocketing the proceeds. The business and its people have probably been part of your life for some time and you will think about it well after you leave. This makes it important to work with a buyer you will be comfortable with, even though you will probably not be involved as you move on with your life. You may revel in the notion of not having to go to the plant every day but still want a sense that the buyer’s objectives align with what you envisioned.
Have and Have Nots
Closely related but not necessarily joined at the hip with the type of PE deal are what Schaefer calls Haves and Have Nots. The Have Nots are the hard-core (and sometimes successful) offset-only shops that bet the farm on offset presses. The only digital devices in some of these shops may be a copier and a few cell phones, with some even having digital platemakers. Some Have Nots may be Luddites that don’t want to learn that new-fangled digital technology. Others are in love with inks, plates and runs of 150,000 or more. Still other Have Nots are hitting retirement age. This is a perfectly good reason for selling but is a story for another day.
By comparison, Haves may still have an offset press or two but could be like be like a printer I know who pointed at his two recent Heidelbergs, then his sheet-fed inkjet box. “I have bought my last offset press” he told me. His inkjet machine stood next to a bank of toner-based digital presses from three vendors. He runs his Heidelbergs when necessary but the money-makers are his digital presses. He is a Have, replete with the associated software and the choice this morning’s customers who want fifty-seven 21 x 28-inch full-color prints tomorrow. I have visited several Haves like him while others are all-digital-all-the-time.
Whether or not PE is involved, Haves are usually more appealing to buyers because they have already made the investment in equipment, software and people to attract the types of business that drives income today and can attract buyers of the business tomorrow. In addition, Schaefer points out that Haves are often adept at differentiating their businesses and making their businesses appealing to customers. The resulting “stickiness,” as he calls it, helps foster growth and repeat business. Have Nots, he notes, are likely to feel more vulnerable as their markets shrink and longer runs become impractical.
Line up Your Ducks
When putting together your side of the agreement it is vital to know your objectives and how those may or may not fit with those of the buyer. “This helps you finetune your vision with that of the buyer,” says Schaefer. “This helps you make informed choices that maximize value and set the stage for success.” This is a sound approach even when not selling your business.
Get your CFO or accountant in early. Any PE buyer will want to know all the details of your business so be sure to the info at hand. Roger Gimbel notes that incorrect or missing accounting data is a red flag, so be sure all the accounting info about your business is available. Have verifiable answers ready.
“Try not to guarantee performance,” says Gimbel. For example, if every September and October was a big period for several years but that cash infusion vanished last year, any numbers guy will spot it. It may be due to a change in management at your customer, because the client was acquired by a firm with different priorities, or due to an error on your end. The same is true for loss of a big customer three years ago. Have reasons ready when you are asked—and be able to back it up.
Protecting employees
Something I hear frequently from business owners is the desire to protect employees. Even in lean times business owners are often reluctant to trim payroll. This a characteristic of the family-like nature of independently owned printing businesses. Owners value their staff and sees to minimize disruption in their lives. In a PE deal this can be a negotiable point, with an owner standing up for his/her people while the deal sits unsigned. Pay attention to this detail. It reflects on you as a business owner. Are you a “take the money and run” guy, or do you truly respect the people who empower your business? Both Gimbel and Schaefer mentioned this and it’s a recurrent concern among many print providers.
Make Sure
There’s a lot more to this that we’ll get into in a few weeks, like why some printers are selling. These include competition, consolidation, shrinking demand, age of business owner(s), succession challenges, and more. Until then, remember a couple things.
Whether the cash infusion is private equity, an entrepreneurial purchase or an investment by another printer, there is a lot to think about, all before the ink leaves the pen.
“Engage a lawyer and accountant who have experience in PE deals, says Gimbel. “You want a contract that works for you. Aside from the buy-out language, it’s important to have some kind of safety net for your employees, who might otherwise find themselves vying with others to keep their jobs.” This topic will probably be raised in various discussions you have with the buyers but it’s your job to make sure it is part of the sales agreement.
By taking your time you can cover all the variables. When the money is in the bank and you’ve reached hole 6 in two strokes and are a five-foot putt away from being two under par, you know you’ve made the right decision.
By Noel Ward, Editor@Large
Tuesday afternoon you take a call over the land line. Expressing what seems like genuine interest in your business, the caller wants to schedule a meeting. Sounds as if there might be an offer in the works. Figuring that could scratch an itch you think, “why not,” and set a breakfast meeting for Friday morning. Plus, you can hit the golf course afterwards and see if you can make it to the green on hole 6 in two strokes. Like your pal Harry does all the time.
The meeting wrapped with compelling numbers that left a few things running through your brain. The business is doing well but selling it would sure make writing checks for the kids’ college tuition easier. They guy you met with said if you stayed on for a year as a contractor your monthly check could double or triple as part of the buy-out. Your team could keep their jobs. Then there’s those six acres on the lake. Putting a new house on it would be a lot easier with some extra cash. Having a few bucks would also help get your side hustle of old car restoration out of first gear. Your wife would like it too. And it’d be a great start to knocking a few strokes off your golf game.
PE
The buyer is a private equity (PE) group that already owns half a dozen printers and is looking for more opportunity in the highly-fragmented printing market. A few other shops in your state may also be part of this. You know a PE deal worked pretty well for some other printers you know. Still you worry. The investors have the general experience to take over your shop. It sounds as if they would treat your customers well. They may even keep you and your team on board while they get established. This sounds like it could be a pretty good wrap on 41years. Hmmm.
Seeing the consolidation in our industry I wanted to gather some info for printers deciding whether to keep going or opt for the take-the-money-and-run choice. Far from having any expertise on things financial I started by calling Roger. Roger Gimbel is CEO of Gimbel and Associates, a print-industry consulting firm that arose after a PE deal pulled him away from his long career as a commercial printer in New York City. Then I called Peter Schaeffer, founder of New Direction Partners (NDP), a leading merger and acquisition (M&A) firm in the print industry. If you are thinking about selling, merging or acquiring, talk to Peter.
Two flavors
Schaefer described two flavors of private equity, Financial and Strategic. These help define the parties that are interested, closely followed by the Haves and Have Nots, which define the printer(s) involved.
A Financial deal is pretty much all money: It’s a group of investors seeking to buy a company for resale it and make money off the deal. A Strategic one sees your company’s value as one of several other printing companies it has acquired or is acquiring. They think adding your company would make the firms they already have more profitable now, and collectively when sold. He said the new ownership may rename your shop under one brand or keep the name you have always used. You wouldn’t have a say in this. Although it may not always make a practical difference, you should find out whether the PE deal is Financial or Strategic early on. Either way, it may make the terms of a deal more amenable to you
Shaefer told me it’s worth noting that Financial buyers may be more inclined to keep you or your team around for a specified period because while this is just a business deal, they may want some skin in the game—people customer know who have some expertise. It’s important to realize this can make the sale of your business more attractive because the buyer(s) may have no knowledge of the printing business, especially customers and markets. This means your expertise and tribal knowledge of customers and your market has value in the deal. In contrast, a Strategic buyer maybe able to replace key staff or even an owner relatively easily because they may have other printing firms to draw from.
Such distinctions can be important because selling your business is about more than pocketing the proceeds. The business and its people have probably been part of your life for some time and you will think about it well after you leave. This makes it important to work with a buyer you will be comfortable with, even though you will probably not be involved as you move on with your life. You may revel in the notion of not having to go to the plant every day but still want a sense that the buyer’s objectives align with what you envisioned.
Have and Have Nots
Closely related but not necessarily joined at the hip with the type of PE deal are what Schaefer calls Haves and Have Nots. The Have Nots are the hard-core (and sometimes successful) offset-only shops that bet the farm on offset presses. The only digital devices in some of these shops may be a copier and a few cell phones, with some even having digital platemakers. Some Have Nots may be Luddites that don’t want to learn that new-fangled digital technology. Others are in love with inks, plates and runs of 150,000 or more. Still other Have Nots are hitting retirement age. This is a perfectly good reason for selling but is a story for another day.
By comparison, Haves may still have an offset press or two but could be like be like a printer I know who pointed at his two recent Heidelbergs, then his sheet-fed inkjet box. “I have bought my last offset press” he told me. His inkjet machine stood next to a bank of toner-based digital presses from three vendors. He runs his Heidelbergs when necessary but the money-makers are his digital presses. He is a Have, replete with the associated software and the choice this morning’s customers who want fifty-seven 21 x 28-inch full-color prints tomorrow. I have visited several Haves like him while others are all-digital-all-the-time.
Whether or not PE is involved, Haves are usually more appealing to buyers because they have already made the investment in equipment, software and people to attract the types of business that drives income today and can attract buyers of the business tomorrow. In addition, Schaefer points out that Haves are often adept at differentiating their businesses and making their businesses appealing to customers. The resulting “stickiness,” as he calls it, helps foster growth and repeat business. Have Nots, he notes, are likely to feel more vulnerable as their markets shrink and longer runs become impractical.
Line up Your Ducks
When putting together your side of the agreement it is vital to know your objectives and how those may or may not fit with those of the buyer. “This helps you finetune your vision with that of the buyer,” says Schaefer. “This helps you make informed choices that maximize value and set the stage for success.” This is a sound approach even when not selling your business.
Get your CFO or accountant in early. Any PE buyer will want to know all the details of your business so be sure to the info at hand. Roger Gimbel notes that incorrect or missing accounting data is a red flag, so be sure all the accounting info about your business is available. Have verifiable answers ready.
“Try not to guarantee performance,” says Gimbel. For example, if every September and October was a big period for several years but that cash infusion vanished last year, any numbers guy will spot it. It may be due to a change in management at your customer, because the client was acquired by a firm with different priorities, or due to an error on your end. The same is true for loss of a big customer three years ago. Have reasons ready when you are asked—and be able to back it up.
Protecting employees
Something I hear frequently from business owners is the desire to protect employees. Even in lean times business owners are often reluctant to trim payroll. This a characteristic of the family-like nature of independently owned printing businesses. Owners value their staff and sees to minimize disruption in their lives. In a PE deal this can be a negotiable point, with an owner standing up for his/her people while the deal sits unsigned. Pay attention to this detail. It reflects on you as a business owner. Are you a “take the money and run” guy, or do you truly respect the people who empower your business? Both Gimbel and Schaefer mentioned this and it’s a recurrent concern among many print providers.
Make Sure
There’s a lot more to this that we’ll get into in a few weeks, like why some printers are selling. These include competition, consolidation, shrinking demand, age of business owner(s), succession challenges, and more. Until then, remember a couple things.
Whether the cash infusion is private equity, an entrepreneurial purchase or an investment by another printer, there is a lot to think about, all before the ink leaves the pen.
“Engage a lawyer and accountant who have experience in PE deals, says Gimbel. “You want a contract that works for you. Aside from the buy-out language, it’s important to have some kind of safety net for your employees, who might otherwise find themselves vying with others to keep their jobs.” This topic will probably be raised in various discussions you have with the buyers but it’s your job to make sure it is part of the sales agreement.
By taking your time you can cover all the variables. When the money is in the bank and you’ve reached hole 6 in two strokes and are a five-foot putt away from being two under par, you know you’ve made the right decision.
