Commentary & Analysis
In the Print M&A Marketplace, Amateurs and Generalists Need Not Apply
You’ve placed your company's future into the hands of a self-styled M&A adviser. But do you truly understand what your agent’s qualifications are and where the relationship is going to take you?
By Patrick Henry
Published: September 13, 2013
You’ve placed your future into the hands of a person who’s convinced you of his or her ability to find a buyer for your printing company or a seller whose firm it would make sense for you to acquire. You and your new M&A agent probably know each other pretty well—you may even have done business in the industry together. But, do you truly understand how capable your agent is or what results the relationship is likely to yield?
Thomas Williams of New Direction Partners (NDP), a consultancy focused exclusively on print industry M&As, recalls a casual conversation with the owner of a graphics business who had engaged a representative with what the owner didn’t realize were inadequate credentials. Williams asked some questions, and at the end of their talk, the owner conceded, “I almost made a really bad mistake.”
Had the mistake been made, it would have been an honest one—but a costly miscalculation all the same. Just as the mere ability to swim doesn’t make the swimmer a lifeguard, time spent in a print industry occupation doesn’t automatically qualify someone to broker and manage print industry M&As. An amateur—even one who legitimately does business as a supplier or a service provider to printers—won’t have the range of contacts or the breadth of experience that a genuine M&A expert brings to the table.
Unqualified people who promote themselves as M&A advisers may try to redeem their shortcomings by charging less for their services than bona fide professionals would. But, attempting to save money in this way is a false economy. According to Williams, sellers or buyers sometimes have to learn the difference the hard way, and when they do, their perception of M&A advisement changes. “We may even get them on the rebound,” he says.
Al Reijmer, another NDP partner, says to be wary of the self-styled M&A consultant who offers to structure a deal without a retainer but who also insists on locking the seller into an exclusive long-term contract. In that type of arrangement, as the rep casts far and wide for buyers, confidentiality—always protected by the discreet practices of M&A professionals—may be hard to preserve. When word gets out that a company is for sale, Reijmer warns, things could happen that could kill the deal: the defection of salespeople, for example, and the loss of key accounts when they go.
Self-styled “industry insiders” aren’t the only ones offering questionable advisement. Reijmer notes that the industry’s dramatic consolidation in recent years also has attracted the attention of M&A consulting firms from outside the printing business. Often sporting fancy addresses and slick promotional materials, these M&A generalists have drawn more than one print company owner into arrangements that later became sources of deep regret.
Reijmer says he knows of a case in which the printer paid the equivalent of 1% of his volume as an up-front fee to an adviser who then “did nothing” during the two-year term of the contract. Williams recalls a web plant owner who realized he had made the same kind of mistake, only to learn that the contract left him with no options for recovering the fee. Contracts can be structured to make retainers exceedingly difficult to recoup, and when that happens, says Williams, “you don’t get your money back” even if no results are produced.
Generalists fail mostly because they don’t know how the printing industry is structured and what drives dealmaking within it, Williams says. He points out that because the industry consists mostly of privately held companies, outsiders are limited to the information they can glean from the relatively small number of print firms that are publicly traded. That kind of research seldom yields a useful picture. On a couple of occasions, notes Williams, M&A generalists have come to NDP for help after discovering just how superficial their understanding was.
For many print company owners, acquiring another company or merging with one in a sale is the transaction of a lifetime—a deal with just a single chance to do the right way. That’s why NDP urges owners to be scrupulous in qualifying the capabilities of M&A advisers. They recommend asking the following questions to separate the posturers from the pros:
• Is your M&A practice dedicated to the graphic communications industry?
• How do you stay connected with the industry?
• How many M&A transactions have you closed within the industry? (As an analogy, imagine that you needed surgery. How many successful operations of your type would you want to hear the surgeon say that he or she had performed?)
• Can you furnish references from clients you successfully have closed transactions for?
• Can you walk me through the steps of selling my company or acquiring another one, giving me a clear timeline for the sequence of events? (NDP particularly urges steering clear of any consultant who cannot adequately answer this question.)
• What’s your track record in M&As involving companies the size of mine? (A consultant whose M&A experience is mostly within the $3 million range may have trouble ramping up to a $30 million deal, especially if the consultant lacks contacts among firms large enough to enter into a transaction of that magnitude.)
• Can you give me a probability of success for my transaction based on its EBITDA number?
• What resources does your M&A business have? In executing my transaction, who will be your backup?
• In your opinion, what fringe industries might have an interest in my company, and why? (“Fringe” means similar to printing companies, but not the same: advertising agencies, mailing and fulfillment houses, data management companies, and other firms that could see opportunity in cross-selling the complementary services of a printer.)
• Does your consultancy offer any other services that could create a conflict of interest if I engaged you to handle my transaction?