Acquisition deals in print are possible and with a spate of mergers among label companies, there is ample proof that the right company will attract the interest of growth minded businesses. In this instance, European label printing groups, funded through private equity, Asteria and All4Labels are purchasing businesses in Europe and beyond, establishing a network of label businesses to rival the well established giants of the label world like CCL and MCC.
Both expanding businesses have been active in the UK. All4Labels broke its duck with Olympus Labels in 2022 and followed up with Springfield in early 2023 and towards the end of the year completed the acquisition of Print-Leeds. Asteria started with CS Labels and has since purchased Berkshire Labels. It would be no surprise if further UK companies were added to their networks before this article reaches print. Now a similar strategy is underway in carton printing. French high end carton business Autajon has purchased Simply Cartons and more recently Royston Labels to expand its network of suppliers at the luxury goods end of the market. Duncan Print Group has agreed a deal with German business Carton Group.
The appeal is obvious: labels and cartons are both resilient sectors that are growing as the tectonic plates under retail have shifted post Covid. This is not generally the case for commercial printing: the perception is that commercial printing is in a steady decline and that decent margins are not possible. The exception is perhaps where there is a strong online business, or perhaps where printers have developed new strings to the bow, via large format, mailing, or of course labels or other forms of packaging.
Consequently while there are plenty of businesses that want to sell, there are fewer buyers. The prognosis for commercial print is not great. Demand has been dropping and acquisitions are going to be less about growth than cutting costs and buying an order book.
Paul Holohan, managing director of Richmond Capital, has been involved in numerous deals over the years and sees little appetite for aggressive takeovers now. “We are seeing the end of leveraged buyouts,” he says. “Buyers are not willing to take on debt, even if the banks might let them. Where debt has been needed to get the deal over the line, the expectation is that excess assets can be disposed of to rebalance the books.”
This is because there is simply little scope for growing the acquired business, says Holohan.“Getting growth in print is difficult so taking on a leveraged buyout when there is no growth in the business plan is very difficult. Putting two businesses together under one roof can lead to cost savings to justify a deal rather than an expectation of growth.”
There are plenty of companies hoping to be bought. Many were set up 30 or so years ago by ambitious sales and production teams. Now their owners are looking to sell up and retire. However, all too often there has been little succession planning and less grooming of a management team to take over, even if they wanted to do so. The business has looked after its shareholders rather more than its staff through investment. Where some preparation for new ownership has taken place, there is a greater chance of finding a buyer. As with searching for a three bedroom semi on a housing estate with hundreds of similar homes for sale, the well maintained property that has been freshly decorated will stand out, so a company that has its figures in order stands a better chance of a successful deal.
But that deal may have to be structured in ways that are very different to deals a few years ago. Then a mortgage, loans and an influx of business could fund an acquisition. The previous owner of the business could walk away into a well earned and well funded retirement, perhaps in Spain.
Today the seller is unlikely to walk off with a lump sum. Instead the agreed amount may be spread into staged payments over a number of years.
The problem, says Close Asset Finance managing director Paul Philbrick, is that there is a big gap between what the owner believes that 30 years of blood sweat and toil makes the business worth and what someone will pay for it. The owner holds out for a better price, but says Philbrook, “the business begins to falter with the result that any value in the business is long gone”.
Preparation should have started many years earlier. Advice is available. Close, he says, will ask questions in the normal course of business. “We ask the business owners about their exit strategy and it comes as a surprise when we speak to someone that is well prepared.”
In the course of its business Close will encounter companies that are keen to buy as well as those that want to sell. It can sometimes put these in touch. A deal that may follow can include asset finance, using money that exists in terms of equipment or buildings, and invoice finance.
Term loans can be part of this. Each deal will be structured to suit the business and the specific deal. The sea change, he explains, comes with the consideration due to the seller. Once this might be a large cheque to fund a happy retirement. Today that sum is less likely to be paid up front.
“Perhaps there will be an arrangement to pay the outgoing owner a salary or extended payments. We find that people are quite happy about that these days,” Philbrick says.
The driver for a deal is likely to be built around diversification into a different sector or geography. Large format graphics businesses remain popular and are frequently not expensive; anything to do with packaging is interesting; ecommerce and textile printing have their appeal, he explains. More often than not the driver is about bringing in sales and revenue to the core business and mitigating the existing overheads over a larger turnover.
“People will buy a business for its turnover and then sell the acquired assets at a later date because they are surplus to requirements,” he says. “In today’s conditions it is very difficult for a business to grow organically so the only way to grow is to buy turnover.”
There is a huge element of buyer beware to consider. However much due diligence is done ahead of the deal, the financials can hide a multitude of issues that will perhaps need aligning with the new owner. Perhaps there was a different approach to sales, to discounts and bonus targets; perhaps people in the two businesses doing similar jobs were working to different pay scales and rates; perhaps people used to continental shifts will be required to work nights and five days a week with less overtime. Lawyers ought to highlight issues around staff so that directors stay within the rules.
This is in addition to the obvious issues of lining up the different MIS platforms, accounting software and CRM systems, if any. There will be costs and disruption if machinery is to be moved.
Then the question of timing, whether it is better to buy a business before it is on the slide or to wait and buy the company in a prepack arrangement with an administrator. This has worked very well for Paragon, which was most recently able to pick up elements of the Communisis business that added value to its own operations and not the elements where there is already sufficient capacity. This was just the latest deal for Paragon which through numerous acquisitions has the experience of doing this and has a clear modus operandi. Someone without the infrastructure and experience may be better to step away from acting as a white knight riding to the rescue of a failed business. Due diligence may only go so far.
This explains too why when a business does hit the rocks it will more often than not stay there. Getting started again, building up some kind of credit and becoming a successful phoenix business is extremely tough in a market that is not growing even if overheads have been minimised.
This is not slowing demand for takeover deals. David Bunker, partner at Compass Business Finance, says that he is constantly talking about such arrangements. “There’s always one or two deals on the go. People are constantly gravitating to me to ask me to find them an opportunity either to sell or to buy,” he says. The underpinning reasons can expand beyond any immediate retirement plans or an acquisition to add turnover, two of the most common reasons driving M&A.
One, he says, was a company looking for a new factory after a lease had expired, so wanted to buy a business that had a substantial building that might accommodate his existing business. That deal has given the company a taste for acquisition and several other bolt-on deals have followed, all bringing revenue in to reduce the share of overhead each job has to carry. Bunker stresses that sound advice is necessary, from legal as well as a financial point of view. Few deals take place without m’legal friends becoming involved. Bunker says: “Many of the family owners of artisan printers that are left in the industry are now very sophisticated business owners who when looking to buy have a legal team looking after their interests and so will know what the real value of the business they are interested in is and so what they should be paying.”
It means that many would-be sellers can be disappointed. Valuations for print businesses are not what they were a generation ago when four-colour litho printing was at its height, nor can buyers find bargains with businesses owning freeholds on sites that might be better as housing than printing – one of the drivers of Robert Maxwell’s empire building of print business acquisitions in the 1980s and 1990s. With margins tight, the seller has to work at finding a buyer – what for start up businesses looking for investors is known as ‘the beauty parade’. The same applies to any business hoping to find a buyer. Bunker says that many owners need to consider this.
“They haven’t asked themselves ‘what should I look like if I want to sell’,” he says. “The appeal of their business is self evident to an owner who has built up the loyal customer base over many years. But not to a potential purchaser from another part of the country or indeed from another country.” Very few print businesses have a brand that overcomes this barrier. Hence it is important for the selling company to have addressed the questions that a would-be buyer will ask.
Has the business a strong niche in one type of product?, has it diversified into new areas?, how strong are its financial controls? – does it have a finance director? – indeed, what does the management team look like? Do the cultures of the two businesses match?
Many a deal has gone wrong when a large business acquires a company that is successful and expanding in its area of special expertise and then suffers when the larger company imposes its more formal structures on the looser more entrepreneurial business that has acted without the structured formal research which is now demanded before each new investment. Key people will often leave.
The deal if and when it happens will, says Bunker, frequently involve a mixed bag of finance. Buyers with cash to spend are rare, so finance will be needed across asset finance, mortgages, loans and cashflow finance. It is no longer about cashing in on the value of the Heidelberg and refinancing that to fund the deal, though that can be part of the package. The bag will also include a mix of funders, says Bunker, adding that the high street banks have walked away from SME finance. Consequently Compass may use its own money, may bring in an invoice financing company, may even include rival Close in the funding.
“The message is that if as a business you want to sell, get your management team in place. A business should run in its day to day operation without the involvement of its owners. We are seeing a lot of printers starting to do this.”
This can also mean growing the existing business through smaller acquisitions, perhaps the sales and name of a local business that has hit hard times and whose work can be brought in to the existing mix, perhaps diversification by expansion into large format or apparel printing in order to expand the services available to existing customers, investment in web to print as the silent salesman. Ultimately the goal is still to sell the core business, but increasing its appeal by taking the decisions that a new owner would have to make in any case.
Other steps can be less obvious, say reducing overheads by changing lighting or compressors to cut energy use with an impact on the bottom line.
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