Trade Shows: A Learning Experience for the M&A-Minded
As many of us plan our trips to Atlanta for PRINTING United Expo in October, it’s a good moment to reflect on how trade shows can connect to the general trend of mergers and acquisitions in the printing and packaging industries.
Of course, company owners and their teams don’t go to trade shows with M&As uppermost on their agendas. But, the capital investment decisions they make at these events have something to tell us about who will fare best as buyers or sellers after the purchasing agreements have been finalized and the technology has been delivered and installed.
If our show-bound clients have their sights set on anything, it is expanding their digital capabilities, not just as producers of print, but also as controllers of the data that drives virtually all graphic production today. This applies to print service providers serving markets as diverse as packaging to commercial, and from wide-format to promotional products.
One of them, a well-known provider of direct marketing services, is convinced that the next acquisition it makes should be a business that specializes in data analytics. Our client understands that once a print-based company has mastered data management to a point where it can plan and execute end-to-end multichannel marketing campaigns for its customers, it is out of the price commodity trap that less data-proficient producers may find themselves unable to break free.
The Multichannel Imperative
One takeaway from the Expo surely will be that staying competitive as a printing or a packaging company means being able to support customers in multiple channels of marketing and business communications. A multichannel provider becomes “sticky” to its customers once they realize that going to a competitor would be an unacceptable sacrifice of the advantages the existing relationship gives them. Experience also tells us that the multichannel “stickies,” with their outstanding profit margins, command customer loyalty and premium pricing multiples when they position themselves for sale.
Printing and packaging trade shows are by nature equipment shows, and at this one, we expect digital printing solutions to take the spotlight. In our opinion, the industry’s shift to digital, and particularly to digital inkjet, is unmistakable.
Another one of our clients, a $60 million commercial printer, now produces the bulk of that volume digitally with just one sheetfed press remaining in its offset department. Others tell us they’re holding off from making additional offset investments because they believe that genuinely long-run digital presses are on the brink of coming to market.
This isn’t to say that offset is fading from the picture — its place in the print manufacturing mix is secure, above all for high-volume packaging. But, it does point to the fact that producers know it’s no longer enough, in most cases, to be a flexo- or offset-only operation. The good news is that the path to diversifying for profit leads in different directions. For example, promotional products has been an ancillary business where many mainstream printing operations are finding success. Fulfillment and logistics also come to mind. The Expo should be a great venue for exploring these and a host of other possibilities for firms that want to branch out.
‘Cloud Nine’ for Private Equity
We know of one group who are eager to treat the show as a learning experience: private equity (PE) investors, whose interest in printing and packaging has been intense for a good number of years now. A PE buyer we invited to the Expo last year came away almost on cloud nine after discovering how multifaceted the industry is and how technologically advanced it has become.
PE investors are opportunists. Mature, fragmented industries, such as printing and packaging, offer them precisely the kinds of opportunities they thrive on.
What attracts them initially is being able to create synergies and reduce costs among the pieces they acquire. Once the investment platform has been built up as a “have” — a multichannel profit leader — the PE investor can then expand it either by adding more “haves” or by acquiring less sophisticated “have nots” and the cross-selling opportunities they bring with them. This year’s Expo should be fertile ground for private capital seeking to plan and execute along these lines.
No Significant Slowdown for M&A Funding
We’re sometimes asked what effect the rising cost of money is having on capital investment and on the availability of funding for M&As. Judging from what we’re seeing and hearing, neither activity has slowed down much because of increased interest rates.
Banks and other sources of financing are still lending, and the M&A market remains a great place for both buyers and sellers. A recession — at least for now — appears to have been avoided. Where we find reluctance to invest, we find that reluctance typically has more to do with personal reasons than with doubts about the state of the economy.
On the eve of the show, our advice about the timing of capital spending bears repeating. Owners planning to sell their companies should also be planning to invest in the equipment and technology they need to keep the business competitive, even as they strategize a personal exit.
Peter Schaefer, partner at New Direction Partners, is an experienced dealmaker with more than 25 years of investment banking and valuation experience, 20 of which has been focused exclusively on the printing and packaging industries. He has closed more than one hundred transactions in virtually every segment of the printing and packaging industries. In addition, he has performed hundreds of valuations for ESOPs, estate and gift tax planning and strategic planning purposes. Contact him at (610) 230-0635, ext. 701.