Hello, I’m Paul Reilly, Partner at New Direction Partners. We see many reasons today as to why the M&A activity is so high. The one that’s most compelling is the need to grow. It’s very, very difficult in today’s marketplace which hasn’t been growing to go out in the marketplace and get that new customer, bring in the new business. But we’re seeing large, small, and medium customers they’re growing through acquisition and it’s a better alternative. It’s a better way to execute your strategy.
Recently in a very large acquisition we’ve seen Quad Graphics buy-in World Color. And the medium and small size we actually see a growing trend of M&A activity and we see two structures driving it. One we call a cashless merger. Actually two medium sized company’s get together, they merge their companies. One doesn’t buy the other and the owner’s of the two previous companies actually have part ownership in the new business. The reason why this works is that you get the synergies of merging the two companies together, the cultures of those two companies still exist, and it’s the best way for these two companies to grow in such a difficult market.
In the smaller end of the market we see a structure we call tuck-in And a tuck-in is essentially purchasing the sales of another company and we’ve said for years the value of printing companies are in the customer base. Well, the tuck-in is exactly what is happening here. It’s that you see companies buy another business and most of the compensation that’s being transferred from one to the other is for the value of that customer base. Sometimes they buy the equipment, sometimes they don’t. Sometimes they buy the receivables and inventory, sometimes they don’t. But what’s really important is that they buy the sales of a company and then they merge those two companies together.