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Why buy a printing company?

Friday, 31 October 2003
By Print21

Properly planned and implemented, acquisitions offer a legitimate growth strategy for companies of all sizes. If they fail, they generally fail big-time. Colin Thompson gives some timely advice from the pages of Print 21 magazine.

There are many legitimate reasons for acquiring another company. These include expanding your markets, acquiring people, systems and processes, adding new products, services and customers, achieving economies of scale, reducing expenses, creating opportunities for cross-selling, gaining new distribution systems and even eliminating competition.
Ultimately, the reasons for contemplating an acquisition fall under one all-encompassing umbrella: the desire or need for quick and substantial growth.
Growth is the only valid reason to acquire a company. If you want to grow incrementally, don’t bother with an acquisition.
To understand if an acquisition makes sense for your business, ask three simple questions:

  • What are the different ways I could grow my business?
  • Could an acquisition help me achieve that growth?
  • What larger, strategic goals will that growth help me accomplish?

Qualifying for acquisition
Having a solid foundation in place is essential. Your people, systems and resources must be sufficient to integrate another company. A well-planned acquisition strategy with realistic plans in terms of expectations and time schedules is needed. Appropriate buy price and terms, with a realistic debt load should be coupled with a clear and well-executed people transition plan.
Before making any M&A deals, ask yourself, will this acquisition increase our profits? Will it improve the balance sheet? Is the risk acceptable? If you can’t answer ‘yes’ to each question, don’t do the deal.
To ensure a successful acquisition, get your strategy right first. Formulating an acquisition strategy requires four basic steps: identify your goals, consider other alternatives, establish key parameters for the deal and create a one-page acquisition criteria sheet.
Once you have completed these steps, you’re ready to start looking for a company to acquire. Before diving headfirst into an acquisition, however, make sure you have the right foundation in place in your current business! Computer and information management systems, management teams, financial planning and human resources must be in top shape.

To buy or not to buy
Potential buyers should answer four sets of strategic questions before making an acquisition:

  • Does the company to be acquired clearly fit into my growth strategy?
  • Will the acquisition increase my competitive position or my profits, either through growth in revenues, efficiency gains, breakthroughs in technology or some other quantifiable measure?
  • Will the transition work smoothly?
  • Will the two companies integrate well, physically and culturally?
  • Am I paying the right price?
  • Do I have the right deal structure?
  • Does the present value of the cash I expect to receive from the deal exceed what I will pay for the business?
  • What synergies, either in terms of revenue enhancements or cost reductions, do we intend to achieve?
  • How and when will we achieve them?

One of the primary concerns in any acquisition is how to control the risks. The first step in this process involves developing a good acquisition strategy. Other risk-management strategies include conducting effective due diligence, using the terms of the deal to get the seller to share in the risk, having a written transition plan and assembling an experienced taskforce to consummate the deal.
If at any time during the deal the risk level exceeds the expected return, walk away.

Finding the right candidate
To guide your search for qualified candidates, develop a one-page ‘acquisition criteria sheet’ that outlines who you are, what you do and where you do it. You should also list your company’s core competencies and how you are financed. Identify what you’re looking for – the type and size of the business, where it could or should be located and whether you want to buy all or part of the business.
Keep your criteria short and to the point. If you can’t fit the information onto one sheet of paper, you haven’t defined your criteria clearly enough.
With acquisition criteria sheet in hand, you can now start looking for companies to acquire. An acquisition candidate can turn up in many different places. It might be a related company, a customer or a vendor. You might see a prospect at a tradeshow or industry association gathering. Don’t forget word-of-mouth from salespeople and, of course, the internet.
Once a candidate meets your initial deal criteria, the next step involves assessing the potential synergies in the deal.
Synergies come in two categories – performance breakthroughs and revenue enhancements. Without synergy in at least one of these areas, the deal will likely fall flat on its face.
Successful buyers share four essential traits: discipline, persistence, patience and timing. Figure out what you want, stick with your criteria, take the time to initiate and develop relationships with potential candidates and be ready to take advantage of opportunities when they arise.

Due diligence: checking out the deal
How do you know whether a potential deal will really work?
Anyone acquiring another business should do detailed due diligence in three critical areas: marketing, financial and legal. Marketing due diligence involves taking a hard look at your assumptions regarding the company’s future revenue growth and profitability, as well as assessing the market’s key leverage points and how those might be changing. Financial and legal due diligence can be covered by examining four key areas: assets, liabilities, cash flow and revenue growth rate.
Cultural due diligence is critical. This requires researching how the organization is run, how management reviews, evaluates and rewards employees and how management sets performance expectations.

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