Should I Stay or Should I Go? Mergers & Acquisitions in the Print Industry

welcome everybody thank you for coming to our webinar um you know a bunch of us

are in different places and have things that have distracting us I’ll tell you for me I’m at the

mtac meeting mtac stands for mailers advisory uh mailer’s technical advisory

Council and I’m at the USPS headquarters in Washington DC and of course I am Brad

Kugler I am the co-founder and CEO of direct mail 2.0 also recently

installed myself after the acquisition of who’s mailing what as a CEO of that

so we like to deliver monthly webinars that will actually either educate you or

enhance you in some way and we like to talk about relevant topics and this

month you know with with changes in the commercial print industry and and

changes in the political atmosphere and changes in the economy and interest rates you know

I get questions and I have recently since this acquisition is how did you do this and how did you know it was a good

idea and I thought you know if I’m getting a couple of questions from our customer base I bet there’s a lot more

out there so what I’ve tried to do is gather some people who have had experience in mergers Acquisitions

buyouts or sellouts within the commercial print industry and these guys here all have

had experience recently or over a long period of time some of us have very little experience I would say me but it

may be pretty recent and some guys do this for a daily for their living uh Peter so I’m GNA turn it over to these

guys to introduce thems and they don’t have to talk about their experience in m&a but just so you get an idea and a background of what they do and we’ll

start with with Eric up there Eric why don’t you take a minute or two and tell us what you’re all about sure we’ll do

appreciate it um Eric vessels uh most of you may know me as my 23 years of

leading what they think um did that for a couple of decades and just recently um

earlier this year um have taken on a role at tactful um so I’m after a couple

of decades and and going through selling the business of what they think in what was it I guess 2022 to the association

of for printing Technologies and back at the startup game again so I am the chief experien officer at tactial

uh we are digital embellishment experts we do training and we have some software tools to make digital embellishment

easier and to democratize that so my experience mostly as an observer and

somebody who has run a media Outlet in the industry for for many years uh so I’ve definitely seen all the press

releases come across and I’ve talked to lots of different printers um at lots of different times over the over the many

years um who have been through this type of thing so hopefully I can add something of value Eric what is tacul

just in a in a 20 second little blurb so we all are familiar with it so tacul are are digital embellishment experts nerds

sort of um we started off doing a Consulting on digital embellishment both

um toner and inkjet fifth and sixth color as well as like your sco’s Duplo and MGI jet varnish those types of

Technologies and out of that Consulting came some realization of some real gaps in the market so we started to get into

the software uh business so it’s t software Solutions is the name of the company and I’m leading the training um

aspect of that right now but we’ve got some really cool um if you haven’t seen them definitely get in touch uh we

demoed them at um drupa and printing United three different software solutions that allows printers to price

um demo and um create digital embellishment and tacti full me tacal

meaning feel and touch these are embossing boils things like that

yeah exactly exactly fair enough there’s some guys here that may not be familiar with that so I wanted to clear it up

let’s go to you tell us tell us about what you what you got going on and how it relates to any m&a or if you want

sure well Brad thanks uh thanks for your invitation um I am here in Sacramento

California Northern California uh we I’ve been imprinting my my whole life uh

I think Peter may have heard this but I started as a as a janitor when I was 18 so that’s many decades wasted in print

uh here in Northern California um and then uh we done every job within the the

print space uh eventually became an owner and partner and uh over the last

now 15 years we’ve we’ve acquired I’ve acquired uh companies in our in our

region and uh brought them together and went from the first it started on April

Fool’s Day 2008 uh bought into a a small uh open web printing company and now

with about 15 16 employees and now we have about uh a little over couple

hundred employees couple big good siiz facilities here in uh in Sacramento in the northern California area and we

continue to look for opportunities to expand so over that period we’ve um

acquired companies of various sizes in the region and uh done every type of

deal from from Sweat Equity buy out on the first deal SBA Loans um done uh uh with

Partners brought Partners in for financing um so we’ve done

every every type of sorry we’re listening to Peter’s Peter’s background there um we’ve done a lot of deals um

and gotten to a size where we’re about 50 or 60 million this year uh right now

we are heavily into the political and election print space feeling pushing democracy forward here in the California

uh region and uh we I’ve been pretty fortunate to had really good people uh

in that supported me along the way and folks that work with me have got a great team and uh we’re we’re still I’m still

in this for quite a while looking for opportunities and and see what’s possible but uh it’s been a a pretty uh

I think some of my my compe might think I have this big whiteboard with lots of opportunity lots of targets but we are

much closer to looking for for opportunities as they come up and and probably our and my best uh best tool

has been some adaptability and working out deals to figure out what works for a seller what works for us and and how we

can make it work so we do a lot of direct mail we do a lot of traditional print digital print uh large format we

are we are widely exhaust we do an exhaustive amount of things uh thank

Casey thank you um your title and the name of your company Delta print group

okay and I’m the owner I there’s a number about 10 different companies but it’s all under the Delta print group um

branded umbrella uh just down into the tech into the weeds each company is actually separate but Del under Delta

prick group is is uh the name we we operate under well thank you for that so

just anyone in the audience if if you have a question you feel free to use the chat or raise your hand and I’ll I’ll

insert them as a monitor as a moderator when I can but uh last but not least Peter tell us what you

do uh well besides sitting in an airport and I apologize for the uh background

noise when we started Eric accused me of having a virtual background showing the

airport so clearly as you know now I don’t so I hope the background noise

won’t be too loud um I am a partner at New Direction partners and on the one

hand we are like a conventional Investment Banking or m&a Boutique where

we primarily represent sellers we do also represent buyers from time to time

but by and large we more often represent sellers where we are unique and some

would say really smart to do this or some would say how boring could we be

but we work exclusively in the printing and packaging industry and and I’ve been doing that since the 90s uh at our

predecessor company uh which was Compass Capital Partners I have three other

partners that uh founded New Direction partners with me uh one uh is Paul Riley

who was one of the two founding Partners at sve and I sold Paul 20 some companies

back in the day and another is a former client Jim Russell where he and I sold

his two family print businesses in Michigan and the fourth partner uh Tom

Williams owned two finance companies to the print industry both of which he sold to GE Capital so we feel that each of us

has a different background that works well with our

specialty and um between the four of us we’ve done three or 400 transactions

within print uh all segments to virtually all buyers with the exception

of Casey Cella we have not yet sold a company to so maybe everybody can put

pressure on him to buy one of New Direction Partners clients hey always be

selling it’s one of the things IE well that’s right you can do it here on a webinar in front of hundred and some

people then do it I I can’t play I would do it myself you know all right well

thank thank you for the introduction so I have some questions and I’m going to pose the first one to Casey I’m sorry

not Casey to to Peter but I would like to hear Casey and Eric comment on this

if they have something that that Peter hasn’t done what are the most common reasons that people would sell their

commercial print business or any business in that fact what have you found as driving maybe the top three or

four reasons and I want to see if if Casey and and Eric have comments on that

so uh you want to start with me and you know I I will say Brad people can decide

to sell their business for any reason and you know we’ve seen a lot of reasons for example back in the Great Recession

believe it or not a lot of owners just said I love the industry but I don’t want to own a company anymore I don’t

want to worry about making pay roll and things like that so it really does run

the gamut as to why people decide to sell but I would say the primary reason would be stage of life if you look at

the I’m going to forget the exact statistic but if you look at the average age of the owner of a

printing company I think the percentage is that 80% are over

65 might even be 68 so the main reason why people want to sell is stage of Life

another reason though could be in it could be different than stage of life it could just be that for whatever reason

the owner feels he’s he’s holding back his company he or she maybe they’re in

need of major investment in the business and they don’t want to double down and

buy that new press or that new piece of equipment and they feel they’re holding

back the business so the best thing to do is to sell it I had two clients uh

not long ago who owned an incredible flexible packaging business decided they

had to sell they were 28 years old so it wasn’t stage of life but they realized

that they had grown the business to its full potential under their ownership and they need a mentorship so they went out

and found mentorship one more reason and then I’ll stop uh talking and and this is becoming

more and more predominant our industry today more than it’s ever been is one of

halves and Have Nots where the halves have invested in the technology and made their companies

communication companies as opposed to just printers that have not have been reluctant to make those Investments for

literally years it was okay they coexisted both companies could do well

in the market but today without question the halves are thriving the have knots

are merely surviving and they are feeling vulnerable and wanting to sell

to a half sorry for the long-winded answer but uh I’m going to come back to

that but I want to get Casey and Eric to just input if there’s a reason that they’ve seen or come across in terms of

people wanting to sell go ahead Casey first and then and then we’ll sure well

uh Peter Peter hit on it stage of life or the they oftentimes a printing

company is owner founder uh or second generation and they have uh reached a point where they

want to take chips off the table or they’re ready and and as as Peter noted uh reaching a point where what it takes

to either keep going or to grow the business is putting capital in putting

reinvestment putting energy reinvestment into it so there there certainly comes a

point where do I want to add another take on a debt load to add equipment to

keep up with our capabilities in the marketplace which is going to cost you know turn that into years that’s a

Year’s commitment to offset whatever whatever equipment might be involved

that that’s going to take longer leases longer investment longer investment returns so uh oftentimes see that they

uh are are ready to to not want to do that and ready to pass on uh they may

not have family members or a structure within their company that allows them to

have a natural transition into who’s going to take it over um most of the

businesses that I bought uh approaching 10 businesses now 10 Print and Mail businesses uh

are family founded and so it’s that owner’s decision or recognition that

maybe my kids even if they’re working in the business and that’s that’s certainly been the case on some of our our

Acquisitions that family members continue working in the business but that that seller wasn’t really going to

put that burden on their kids perhaps or uh didn’t see that they were going to be

the best fit it’s going to be the most fulfilling to to pass that on to them and someone else comes in myself able to

do a deal that that makes them makes them uh uh have the exit that

they they want and need and still in a lot of cases uh preserve the company uh

that that who can they find to keep the company going successfully take care of

uh longtime employees take care of longtime customer relationships and as

also as Peter noted things happen where you might be uh Financial stress uh loss

of a big client it might be uh uh I I’ve

seen it twice of lawsuits exhaust the owner whether that’s from a lawsuit from

A supplier a lawsuit from a uh employee I’m in California not always the best

place to so all those non-california printing sellers out there they can contact me and we can figure out I if we

can do it here we can do it anywhere but that there are sometimes uh there are occasions it could be Health it could be

divorce it could be uh life-changing things that suddenly uh change the

course and uh so when you ask what what uh reasons are there to sell a printing

company there’s a lot of reasons and um you know my my thoughts are always be

prepared uh for the unknown and and it’s it’s certainly an industry that’s changed a lot and continues to change so

what’s been working isn’t always what’s going to work and you’ve got to be be prepared and have some conversations uh

ready for for making a change thank you that that’s insightful I’m gonna make a comment before I ask Eric you know both

of you touched on a point of of the owner sort of knowing his limits whether

it’s burnout or it’s uh risk adverseness to further investment or even something

that I’ve noticed you know I I I’m I’ve been doing business for 30 some years

there are people that can grow a business to nine figures there are

people that can really own a grow a business to the seven figures and there’s nothing wrong with the guy who

cannot grow the business but people have certain ability or skills or things that

they can manage and I think one of the best things about people is when they realize they’ve hit that limit for

whatever reason they don’t want to expand or grow beyond that and they recognize a time to step down all right

I I have seen people try to go past their comfort level and growth and fall

on their face so being able to recognize it is not a failure and and I’ve

consulted friends can actually be a good thing to

be able to recognize that so I just wanted to point that out now Eric have you seen people that come up with other

reasons for for a cell that have not been mentioned here yeah for sure but

you make a really good point about self-awareness though I think I think that’s a a really critical skill as a

business owner or or someone at a high level in business is to have that self-awareness of your own limitations

um it’s critical in building a business right because you need to be able to find people that can supplement those

perceived weak wees so long as you have the self- awareness yeah Peter and Casey really mentioned a lot that I had in

mind the only other one that might stick out to be different as we know uh the printing industry of itself has been

consolidating for some time and a lot of times um I’ve heard owners want to sell

to invest in another business a different business opportunity right to sort of go move into some other business

idea that they have that may be even non-print related I’ve definitely seen that happen um I’ve seen commercial

printer go to almost solely packaging printer you know or other growth areas so taking that revenue from a sale and

investing into a new business is is something that a lot of entrepreneurs do because they’re never going to get rid

of that itch but Peter I think um probably the one that I’ve heard the most as well stage of life you know my

first thought was like retirement or it’s time for me to to go another Dynamic that you’ve seen in the printing

industry and in family run businesses is not all the kids want to print do

printing right so it’s it’s like oh it can’t continue to be this lifestyle business so the thing that makes most

sense in terms of of realizing that Equity is to go ahead and sell thank you

great all this is a sorry statement sometimes Eric though it’s not even the

kids who don’t want to go into the business it’s the owner the the parent the founder who will say I don’t want my

children don’t want them to the business and it’s it’s sad but but you do you do

hear that less today I am hearing that but through the difficult times you do

hear that yeah well and if you think about it for them that’s a very informed decision though right like no question

yeah no question interesting very interesting so the next one I kind of have here is most

people will agree that sort of timing is everything to get the best possible exit um

timing can be a variable that has very that has a lot of different facets you

know time of life interest rates the m&a market activity you know is it a buyer’s

market is a seller’s market what comments would you guys have on timing

and let’s make it simple is now a good time if so why or why not and I’m

probably going to hear you guys say well it depends on the on the business that’s up for sale you know and what’s going on

there but let’s let’s kind of focus this next couple minutes around timing and

how it relates to Now versus a year ago or a year from now well I think for me

just popcorning like one of the first things that comes to mind is personal Readiness like I think I think there’s a

I think there’s a psychological component to am I ready to like at least

in my case am I ready to give up my baby and and there’s a ton of variables that go into that right price market

conditions right those inform whether I’m ready like I get ready real quick if the if the check is real big right but

there is a I think there is a mindset shift that sort of has to happen and you

have to sit down and and have a a long conversation sometimes it involves family as well so I personal Readiness

was one that came up for me Eric that’s a Eric’s got a great point there on on that is uh a seller think well I’m ready

to get a big payday but oftentimes it is a a willingness to recognize I’m going

to actually sell my business this has been part of my identity it’s part of where I obviously go to every day I’ve

been responsible and then sometimes their name is on the building and that is going to be a change that uh can be

slow direct they they like the idea of selling but can’t haven’t pictured it enough to say I’m ready to sell I did um

had a longtime deal that was had percolated had been kind of an open offer for a number of years and

then suddenly uh they started down a path to sell or partner with someone that fell apart and then suddenly they

were at the table because they I felt they reached over the Tipping Point to say I am ready I can see myself not

being owning this printing company and the Legacy if it’s a family business if it’s someone they’ve been connected with

for a long time whether they founded it or took it over that that step is a big

step and then you go into the details of how how is this going to work how are my customers employees going to be affected

what’s my tax payout how much will I make how much won’t I make um those are

that Readiness is a big part from a timing standpoint but like the stock market there’s never you try and time

the market you’re going to miss some upswings and you might get stuck on some downswings and uh sometimes you try to

time it and interest rates two years ago money was cheaper deals easier to get

sudden changes and what might have made sense from a uh a a return uh Target is

two years later different because there’s not enough not as much leverage available and uh the buyers are going to

be different than they were two years ago when interest rates are higher so timing is is is not uh it’s like timing

the market you can sometimes get lucky and I love being lucky but sometimes you just miss it and uh it it is it is a lot

of psychology and a Readiness to be a seller and and you’re never you’re never going to be fully informed there either

right because there’s no way to talk to your future self yeah no if we only we had a crystal ball um I I would just

Echo what both Eric and Casey said and that is the Stars can be aligned

perfectly that Now’s the Time to sell but I tell every prospector every client

you need to take that emotional walk on the beach and say is it the right time for me to sell forget about interest

rates forget about the buyers am I ready to do this so that’s the first step

going to your kind of second part of your question Brad um going past the

emotional aspect is it a good time to be a seller today it’s a very good time to be a seller today it it is interesting

but there are more buyers in our industry today not many people would think this more buyers out there than

there ever have been and that is because starting in 2014 after the Great

Recession our industry was blacklisted with the financial buyers but since then

they’ve embraced us and they have entered into the attractive segments of the

industry and they have there are a lot of financial owners within the industry

and interest rates are high yes higher than they were but they’re being managed

they’re under control banks are still lending the economy is still heal healthy today uh you know I don’t know about

next year but right now it is a good time to be a seller good that’s the good

information so we’re a little about about the halfway point and I’m getting some good questions in but I did want to

ask one more that I think would be beneficial to most people before we take some audience questions

misconceptions on the sales side obviously you have a buyer Who’s down here and a seller who’s up here and that

that’s a fact of life of almost anything except when you go to the grocery store you know what you’re going to pay when

you’re buying and selling a company this this Chasm can be very wide and create a

lot of emotional responses what other than sales

expectations because we all know those are probably the biggest misconceptions everybody overvalues what they think

they’re selling 99 times out of 100 what would you say are the other misconceptions that people might not

think about let let’s start with Peter on this because he probably dealt with it the

most I think um and this is maybe going to sound surprising coming

from my background because one of the major aspects of my job is to maximize

the proceeds and we do of course take that seriously but also it’s just enabling for the deal

to get done because transactions are hard I think lots of times perspective sellers go into this thinking it’s going

to be a two-month deal and it’s going to be closed and it’s not it’s it is a

distracting our average uh projects are six to 9 months some are longer I’ve had

some that have been multiple years and this process or this is just well this

is the process of writing a book on the business coming up with a list of buyers

contacting them and and going through the whole Prospect but but that’s not even really what I was going to answer

Brad the the most important thing is make sure it’s a cultural fit

whoever you want to partner with because I don’t care if you’re the buyer or the seller my advice is the same to either

if culturally it’s not fit don’t do the deal because talk about unhappiness post

closing you’ll be miserable if culturally it’s not a fit so I do think that that’s

critical thank you right uh on that point there you know uh Peter’s

obviously dealt with hundreds and hundreds of th thousands of of sellers while I’m in the the dozens but uh one

of the the Hallmarks is uh how is this who is the buyer who who would

part of the process is to picture who would be acquiring my company if it’s a local in my case local competitors that

uh we are a compliment to or someone I can trust to run the business um those

become some of the the cultural fit that Peter was talking about and understanding who might be buying your

company is a really important part if it’s a private Equity environment where someone’s gonna buy your book of

business and tuck in all your equipment and whoever moves to a different location an important part for the

seller is understand who who is the prospective buyer and who am I willing to sell to and who am I interested in

selling to and that might be I give up some of my I give up some of my money to have a place for my employees to

continue there’s a lot of different considerations in that and it takes different shapes in every deal yeah the amount of

time that the the entire process takes was was what I was going to mention so I’m glad I’m glad Peter mentioned that

because that that’s a mistake that I personally made just as an as an entrepreneur you tend to move fast like

we’re just fast thinking fast moving like you know websites up this over the weekend like we’re launching that that

type thing selling a business is is a process it’s it’s a it’s a long-term

engagement there’s lots of meetings and agreements and confidentiality and back and forth so I think and I’ve heard this

a lot from people that have sold their businesses just that process you know takes time and I think it culture is a

great one right because that’s that walk on the beach that you have right because no matter what you have a legacy if

you’ve built a business and you sell it and you don’t own it anymore you still care about it right that’s it’s true for

me and probably will be forever so whether or not that Legacy is going to be uh taken care of by the buyer is

something that’s important and I think you know should be should be thought through and I I think that’s something

that I think isn’t thought through enough by a lot of sellers because you hear on the back end of like oh I should

have thought of this or I should have thought of that or whatever the case may be so the process it’s it’s long um but

it you know can be worth it I wanted to add something on the process there’s an emotional resiliency that a seller’s got

to have because the buyers come in and and through the diligence period their

job is to find things wrong with the company they’re acquiring okay and it can feel like a personal insult wait a

minute I thought you thought I had a great business here now you’re telling me this ratio isn’t good and this margin

isn’t right and and and like you become almost

insulted at certain times of the process and I think that if I was going to manage someone through this I would I

would get them to expect to be torn down a little bit in your baby you know you

are going to be told what you have not done perfect over the years when I’m not

saying every everybody thinks that they’re they’ve got the perfect business but they’re going to find things that you didn’t even know weren’t perfect and

and I have to say that when I went through that even though I sensed it was coming but when I was told about it by

some fancy bean counter in Silicon Valley who has his Stanford MBA who’s

half my age and and shows me these models and numbers and I’m like you know

part of you goes do I even want to listen to this kid you know but the guy that’s about gonna write the check is

listening to that kid so I got to listen to that kid so I wanted to just convey that personal bit of experience and I’m

sure that other people have experienced the same thing that’s very very profound

your spot on Brad it’s negotiation 101 though you have to keep in mind like you’re you’re negotiating right like

so you during that process the whole deal goes away you know and for sure for

sure but if you’re not if you’re not prepared walk away from a deal you’re not going to get the best deal of course

that too it is an art for sure and it takes an emotional maturity as well as

business Acumen to get through the process it’s not just like waving aside my business for sale and you know a

month later you walk away with a big fat check that’s not really how it goes and if it does it’s it’s the outlier event

it’s not the usual event I’m sure you guys would agree on that 100% I keep I

keep waiting for that transaction BR know you know you hear about it like you

know when Facebook bought Instagram for a billion dollars after they’ve been around for less than a year okay I

guarantee you there were Parts even that deal because you just hear the outcome you know yeah yeah were some some spicy

moments even in that deal you know so all kidding aside for me it is so

rewarding when we finish a deal and both the buyer and seller still really like

each other and and I know that’s sounds like really low expect or low threshold

to strive for but more often than not exactly what you said it’s a very

stressful period and and um lots of times particularly with the

consolidators of yesterday you know back in the 90s when there were all those consolidators out there more often than

not by the time you got to closing the seller despised the buyer and it just

it’s so frustrating and that’s does happen less today but it does still

happen I I am sure I’m sure all right let let’s delve into something you know we’re we’re I’m getting a lot of

questions about multiples and packaging of deals and I know that they can be from one end of the universe to the

other and people are asking is there a

multiple range for a commercial printer you know and what is it based on and

usually how are they packed packaged again nobody’s being held their foot to their fire but what do these deals look

like in general Casey it’s 15 times even that right come on

wish it’s funny that why we’ve never done a deal together Peter J I don’t

know I mean you knew this question was gonna come I mean I’ve already got four people asking about this stuff you

know I you know it it’s for my analysis so I we’re we’re we usually self-fund uh

I you know fortunate now don’t have any Bank debt we’re not a private Equity I’m trying we’re trying to build a business

that is durable is going to be around doing different things well even Beyond me being here I’ve got great teams under

me and and we look for what’s going to be a fit into it and certainly is looking okay what is there any debt with

company what’s the equipment space what’s the the depth and breadth of clients uh and what’s the free cash flow

and then we’re going to Value from there and the multiple Will based on what what

it can what we can grow it obviously you know it’s going to be you know three to five multiple of uh its its free cash

flow and what we can make it work and then work on a deal with the seller what does a seller need what the seller want

what are their priorities when we’re doing deals that’s that’s what I’m looking at um and it depends that it

could be a great company and it’s got a higher multiple it could be a great company but it does it’s going to take a

lot of energy and distract part of for my effort is this distract from my core business

right now to try and integrate this into us and also a key part for me is always how do I add value how does my

organization add value to that Enterprise and make it continue doing

what it’s doing well and then also look for how it’s going to grow and that could be with capital that could be with

technology that could be with obviously great leadership at the at as part of it but the reality is how are we going to

add value and make that a better company so that it can it can pay for itself

that’s really what I’m always looking at now short of that let’s say there’s situations where I don’t want to say

distressed but there really is no cash flow when you pick apart the financials is there is there a path to a deal in a

company like that is it just the assets do you is it via some sort of managed liquidation or bankruptcy how do those

deals get done well for me if I’m we’re buying a company I’m sorry I’m going to hear that

if I’m seeing a company that maybe isn’t going to be they’ve reached their exhausting point and they’re not gonna

grow without further investment is really approaching it to how can we work out something that is going to uh pay

that seller over time might be a carryback might be a performance-based uh keep keep things that’s one of the

best parts for me is that I have a lot of flexibility to try and do a deal built around that seller and

uh that’s different than a private Equity funded group or someplace that’s just looking to grow grow their Top Line

and sell the whole package off to somebody else my mine is more of a

durable business approach and that’s what the pieces I’m looking to to add to our mix is what’s a company that

complements what we do Brad can I take a stab at answering that because it’s

interesting I think Casey and I actually have very similar answers but I think

when you’re looking from a seller’s perspective you maybe get there a little differently so to go to your question

about the tuck in or the companies that are losing or not positive net cash flow

whenever you value a business whether it’s printing or in the industry you need to look at it two ways what are the

value of the net assets and that’s the working capital

the fixed assets the equipment and a Goodwill factor for the customer base

so it’s kind of a tuck in transaction in our industry that’s the net asset value

and then what’s the earnings base value and whichever is higher is the way you’re going to sell so that’s how you

determine if it’s an ebat multiple or an asset valuation in terms of the ebat

multiple it’s interesting Casey threw out three to five and I’ll tell you what I was going to say I was going to say on

average it’s four to five but there are buyers for certain companies and and certain companies in the mature segments

and that are not growing that are going as low as three times so actually really we kind of have the same range um I

would say in determining the multiple there are a whole bunch and this is a

whole webinar in itself but a whole bunch of quantitative and qualitative factors you need to look at but the

primary thing that drives a multiple again in any industry is growth growth

growth growth drives multiples and it’s not growth through acquisition

unfortunately it’s organic growth so if you have that you’re going to get a higher multiple if you have critical

mass you’re going to get a higher multiple if you’re in one of the great niches like one: one direct mail

or po or large format within print those are very attractive segments because

they’re out of the price commodity business they’re going to get a premium multiple so we have sold some companies

since Co we six or even north of that but to be really clear that’s very

unusual and and does not happen often three to five times is the average and

then you look to see if there are extenuating circumstances would one of those

extenuating circumstances you mentioned The Have and Have Nots you’re assuming a certain amount of current infrastructure

and services versus a you know 1980s machinery and they’re not doing

anything technological they’re at the lower end or or where does The Have and Have Not sort of push that multiple so I

I’ll just say this and I’m telling you people don’t think I’m serious when I say this but back in the day and this

would have been pre Great Recession if you had two identical

printing companies that had the same e but one had a 1980s Vintage Press and

the other had a brand new press p s for the same price they’d

sell for a multiple of that IA and it would be the same price that absolutely does not happen today so and clients are

surprised when I say this but when they ask me should I be investing in my business when I’m going through my

process my answer is always of course you should first of all you have to run the company as if a deal is not going to

happen until the day it closes but secondly if you’re holding off on investments that really need to be made

and I’m not saying optional you know this is going to make us stronger for down the road but if you need to make

investments if you don’t it’s going to be reflected in your valuation so you might as well make it again I’m not

saying to go crazy but you have to invest in your business and if you want to get the premium multiple that we’re

talking about you have to figure out how to become a Hab right so if a guy’s

doing $5 million in commercial print and he’s got to go spend a million5 on a new

variable digital inkjet is it worth it I mean well I I would argue if $5 million

commercial printer does not need for their current book of business they do not need to go

buy that type of press if they want to transform their business

business over the next several years then yes they probably would want to consider that type of investment so

that’s that there is a distinction between uh making an investment just so

you can make your company better over the next couple years versus what do you need today to service your existing

customer base right does that make sense and these aren’t always Capital expenses

they could be that’s right uh service features or new new things Services you

add to your your your menu or your catalog you know so it doesn’t necess have to be full Capital Eric I know that

you have been chomping sorry Eric I feel no I I was actually just going to

ask a question of of of the experts I’m wondering depending on how the numbers shake out one or the other side of this

equation is going to be more enamored with a multiple than than the other right and I I feel like that and may be

wrong I’m not the m&a expert but that feels like always sort of a starting point and then all the other factors

figure in after that right cuz if the if the numbers shake out you know lower

than expected then the the buyer is going to be like oh it’s lower multiple and if it’s the other way I wondered I

that’s a question by the way for you guys so are you

saying the ebat multiple is lower than the asset value well what I’m saying is

like depending on how the numbers shake out it seems like the buyer or the seller will be more focused on what that

on on using a multiple right like because the numbers favor them favor one side or the other so I’m wondering about

that Dynamic and how you should treat that as a seller from disagree with me

but if you’re going to look at the asset value and the earnings

value and the asset value is higher lots of times people will have a very low

ebaa on their going to say well my gosh if you take three times this you’re not

even up to the debt that I have to pay down but if you look at the asset value you have a surplus I I think buyers are

willing to pay the asset value as long as

they um can develop a clear plan on their own to profitize the business

because they’re they’re not going to be happy if after they do that deal it’s still being valued off the asset

valuation so they need to get comfortable that they’re going to be able to profitize it that makes sense

all right let me it goes back it goes I’m sorry it just simply goes back to how do you add value to this company how

will you help it grow and that might be taking the assets that might be either not fully used or utilized and turning

that into more profitable by mix your client mix that you might be bringing into it or as Peter says what how much

profit does it turn out and work off of that number so it and it depends honest the final deal often depends on how does

the buy structure it you can get a higher multiple if you’re willing to do some half carryback or carry back a note

or for you know four to eight years uh then that’s putting some risk on the seller but they get a higher price if

someone’s coming in with cash I’m going to expect that to be a much lower that’ll be a lower multiple because

they’re getting the cash out and and that buyer is taking the full responsibility to have that business continue in following its track record

sure give me you want your 15 times earnings give me 150 years to pay you you know D deal you know so I get it all

right I have a question that that I don’t think we’ve treaded on that was came from one of the audience members it

says what about mergers what kind of criteria are you looking for different skill sets additions of new markets how

does culture play into the merger and acquisition decision whoever wants to to jump on

that one go ahead man I I mean my first reaction is all of those things seem

seem like something you would consider and would be beneficial if you’re you know you you should be looking at

diversifying markets diversifying Technologies like you want it to be

mutually beneficial right that’s that’s my first reaction to that question and then obviously culture is hugely

important um because I think that’s we’ve seen that happen time and time again right and and whether it’s from uh

printing companies or or even the OEM the vendor communities when when it happens you know you see people not be

happy because cultures weren’t necessarily aligned so I think all of those things are important okay any other comments there

I I I oh sorry go ahead go ahead Peter please no no no please you you go I I would just say from a culture standpoint

because we put companies together into the same buildings and and you you have you must respect the culture of the

entprise that you’re that you’re buying or potentially putting together and how that might fit so we we’ve got like to

say we have largely Hispanic Workforce at one company uh Hillbillies if you will at another no no offense to anybody

and some that are cultur they’re dealing with a lot of ad agencies and so you bring those together you’ve got to recognize that and if you don’t pay

attention to it then you will pay a price uh in losing talent in losing clients and uh that that is that must be

considered in how you’re putting as well as the technology spit How You Gonna how you these companies going to communicate

and share resources agreed Peter cultural cultural cultural just

like I said growth growth growth it’s cultural it has to be a great fit and you know the the question I think was

really geared towards mergers as opposed to an outright acquisition and I wish we’d see more mergers in our industry

because I think it’s really healthy because when you think about it if you

have all of a sudden you have two partners who are both owners in the business as opposed to just one their

motivations are aligned perfectly but in order for that to work culturally it has

to be a great fit because we’ve all seen bad Partnerships and that can be

disastrous but we’ve also seen good Partnerships and good Partnerships can be incredibly fruitful yeah I think

especially in a consolidating industry too I think mergers are a way to strengthen the the industry

overall do do mergers come in this industry and again I’m not familiar are they tend to be cashless at close is it

is it Equity Swap and and profit sharing of the combined H how does a merger work in

this industry or I guess it would depend on the size of both companies but are

they do they tend to be cashless at close in most cases or in some cases

it depends if if they’re similar sized and they’re similar profit structure a

cashless merger is perfect because that means you’re going to have two equal Partners but again that can be

very with culture if they don’t get along uh but if if but you can do a

merger where you’re gonna have one 90% owner and one 10% owner that’s still a

merger and uh it’s not a merger of equals but it’s a merger and so in that

instance cash would be trading hands most likely but maybe not they

could just be taking stock in the new enity as well interesting interesting um some

someone asked here and I I don’t want to pretend to know the answer so I’ll put it to you guys what is your formula for

earnings value are we just talking about ebody here or is there some other play on words and I don’t want to assume that

I know everything and some sometimes we need to take this down to Brass tax for some people that are new to this type of

language again I’ll speak to my my own my own uh I won’t use formula because

each situation is different but how will this company how can I grow this company

to pay for its acquisition cost and I haven’t done mergers everything has been an acquisition and I’ve had Partners In

the Mix I bought out partners and I’ll now I’ll own it own it all here come December 31st uh so it’s all my fault

but the reality is that part of what how does this company that we’re going to acquire going to be able to pay off the

debt or the note or the price I put into it and and that’s as simple as that now

it we can use a you know a book value a net asset value but how will that pay

how ises that going to turn out you know if that relative to its debt to its assets how is it going to service

whatever debt it does have the debt that I’m going to carry or the cost that I’m carrying to acquire the business how

will it pay for it it’s as for me it’s it’s as straightforward as that how is this company gonna pay for itself and I

look at it to me I’m multiple I look at that seller is giving me if they’re using a five multiple that means I’ve

got five years to make this pay for itself that to me is what a multiple is and that’s it’s really simplistic but it

is it really is that I’m paying that person uh how many years it’s going to

take for me to pay off the acquisition price so are you just got a big fat

juicy line of credit and it’s basically an asset-based loan based on what it generates and what it’s got on its books

is that how it works I’m sure Peter has different people I use my own money so

we we’ve not you know we’re using carryback we’re using our own Capital my own Capital to do an acquisition so

that’s why it’s not a fit for every seller uh but it is understanding what does a seller need does a seller want

some money to show that they’re doing it and ideally they’re a check in the mail for the next you know from a reliable

well- moneyed person and and group to be able to make that deal pay off over time

and get a better multiple because they’re taking that payment over the the next six years or seven years okay I was

just gonna ask what are the usual terms I’m guessing it’s six seven years sounds yeah like a sweet spot makes

sense Brad I would agree with Casey 100% that a any buyer is going to have a

model where they’re going to determine their payback and they’re going to determine okay based upon this this

should be my if it’s a financial buyer they’re going to look at their irr and

what type of return are they going to generate strategics don’t always do that because they don’t intend to sell but

they’re going to look at how quickly can we get the debt paid off but in terms of

determining what the value should be uh it is and I’m not saying it’s the best

way to value a business but every buyer tends to look at iata and it’s not

really a trailing sorry a three or five year average IA it’s the trailing 12

months it’s not the projected e it’s the trailing 12 months now if you’re making

a projection for a year and you’re going out to Market in like June or September and you have Pro ections through the end

of the year and as you go through the process you can show you’re meeting those monthly projections you might be

able to sell off that one budget for the year but it is trailing 12month eitaa

that really if you’re looking at an earning space it it deviated a little

bit during covid because that was such a just situation that we had never seen

before but but that’s in the rearview mirror of course right good good answer so I’m going to wrap it up with the last

question here I’ll give you each you know 30 40 50 seconds to answer and then

we’ll kind of wrap up uh question is what strategies would you recommend for

someone with experience and the skill set for ownership but lacking the immediate Capital to pursue an

acquisition so I I’m a guy I I I got I might not have a lot of capital but I

want to acquire a company how do I do this is it the old no money down make a deal with

ex long-term terms how how do they make a deal if they want to acquire but they’re not Daddy Warbucks is it even

possible I I’ve lived that that’s how I started my became a business owner went from being a cgx company president

Cobble together some savings and did a Sweat Equity purchase plan a key part is

recognize you want to do it take that risk and then you’ve got to get everything in writing so the worst things I see is when someone has gone to

work for someone yeah that guy’s going to sell the business to me whether that’s printing or whatever and not have it in writing so a key part it is doable

it can take time but it’s also you’re able to to do it with h shallower Pockets but a good skill set and a good

resume so it can be done and part of it is just approaching who you think might be interested in a deal or at least

start starting conversations and spread the word that uh well that because that can get repeated beyond that that you

are interested in buying a company and then opportunities can crop up where you

didn’t seek them out so so let me just carry on that to a little more of a concrete uh you got a little commercial

printer who’s doing three to five million he’s making his 10% eida what

kind of cash to close and terms to pay it off where would you know I’m sure you can do the numbers in your head real

quick how much money is they have to have in his savings account to go do that deal approximately close

it let’s say the company is going to sell for $2 million because it’s really profitable but small that owner is going

to leave that person is going to take their place so there’s a lifestyle business but you got to pay for that is

you might have to come in with 10% down but then a Sweat Equity agreement that eventually if you can get to the 20 or

25% ownership part to your Sweat Equity then you can leverage that into an SBA loan or some other Finance operation and

that that’s what I did that’s how I got our first company was with me and my partner we got to the 20% level and then

we we were able to buy out the founding partner and go from there fantastic Peter you got something to uh contribute

on that I would just say that I agree with what Casey said obviously Casey did

it and and he’s been a great success so it’s a wonderful example I would love to

see it happen more often in the print industry it it it doesn’t happen that often I have seen a number of owners

hire a professional CEO with the intent of selling it to them down the road and

it it just doesn’t always seem to turn out but when it does it can be incredibly successful it’s great the the

only other thing I think I could add is um there are some not a lot but there

are some Financial private Equity type firms that invest in managers like this

and will help them buy the companies and they’ll get paid out over time uh

they’re becoming more and more popular and and they’re called search some of them are called search funds where they

back just an individual like Eric if Eric wants to go out and buy a company

uh they’ll back them and and so it it it is happening more often than it used to

I I wish it would happen more I think it would be great for the industry you ready to back me Peter yeah I I’m not

that type of but I wish I were I mean I mean Casey

yeah Casey’s answer actually was spot on and as he was giving it I was just like yeah there’s no there’s no follow to

that but actually I was G to mentioned basically what Peter mentioned was like find get backing right like if you’re if

you’ve got the skill set if you’ve got it could be a lot of things reputation skill set track record whatever it is

within especially within a niche industry um find people with money that are friends or potentially investors

that look to back people like that so that’s that’s one way to do it and I agree wholeheartedly with Peter I wish

we would see it more for sure because I know there’s a lot of talent out there yeah and you know what’s interesting uh

when you really sit down and think about it everybody says this is such a low margin industry low margin Capital

intensive there have been some incredibly successful people in our

industry incredibly successful and it it’s a great industry and it offers

great opportunities and it’s going through a great transition right now so it’s it’s exciting yeah higher margins

with digital embellishments talk to us Hey listen yeah you guys have been great I really appreciate the transparency it

it is I’ve gotten a lot of comments that this was a fabulous webinar it will be posted on the direct mail 2.0 website in

a few days and uh we will be sharing the copy of it with everybody as well as

contact information for our fabulous panelists so please follow up with them I’m sure they’d love to hear from you

guys thank you again great webinar and uh talk to you next time bye bye guys

thanks for having me learned a lot thank you so much take care