Q&A with Mark Hahn: The Market for Selling a Graphics Business is Robust
Ed Avis: What is the market overall like these days if somebody is interested in selling a graphics related business?
Mark Hahn: I would characterize the market as pretty robust, and there's a lot of activity. Buyers are very interested. Many buyers have strong balance sheets and they are thinking about what's next. They'd like to do something soon, because they are doing well.
Avis: That seems to contradict the idea that “print is dying.” How do you reconcile that?
Hahn: Well, it's very important to think about what segment of print you're in. Are you in wide format, which is still experiencing some growth? Are you a commercial printer that is just a job shop and waiting for that next job to come in? That's not a great place to be. If you're a wide format shop, are you doing installations? Have you figured out grand format? Have you specialized serving a vertical market so that there's value there beyond just the ink on substrate part of the that business? Where your company is positioned in terms of the segment is real important as to what's driving the value of a graphics company and whether that segment is declining or growing.
Avis: Touching on large format specifically for the AEC community, do you find that businesses that have expanded their services beyond printing, to include digital document management, data management, those kinds of things, does that improve the value of the firm?
Hahn: Clearly, managing data for clients is a value-add, provides stickiness with the client base, and is very important in the business. No question about it.
Avis: A lot of reprographics businesses haven’t fully recovered from the recession. Do buyers look at the good years before the recession compared to now and say, “Wow, you’re in decline…we’re not interested in a buying you”?
Hahn: Fortunately, the recession is far enough away now that those years are not included in a typical lookback period. We really focus on the previous 12 months because that's what buyers want to know. Not what happened three years ago, but where am I going in the next few years? I'm buying the future. So we're really past the point where we need to include information from the recession or before. It's just ancient history at this point.
Avis: When a company approaches you about being sold, do you usually find that their financials and other documents are in pretty good shape, or do you need to do a lot of work to get them ready for a sale?
Hahn: It really depends on the client and it aligns pretty closely with the corporate culture. If the corporate culture is somewhat of a seat-of-the-pants culture where decisions are made quickly and in response to the situation, very often there we see the books aren't real neat and clean and there are things that we have to dig into. If the company is more buttoned down, and they've got good procedures in place, we tend to see better financial statements.
I remember one instance where a company’s accounts receivable detail report didn't match their accounts receivable summary report, which makes no sense. They couldn't explain it, and it introduced an element of distrust, because if your records aren't correct, now I need to dig really deep into that to find out what the story is.
Avis: Tell me a little more about culture. What role does culture play in a sale and what constitutes a company's culture?
Hahn: Well, it's an interesting question. Very often when we're bringing buyers and sellers together, the first thing they think about is the price. They want to know how much am I going to pay for this? Then the second thing they typically dig into is what does this company do? How does it align with the products that we make? Is there a fit? And then the third thing they look at is the culture of the company, the people. Are they buttoned down or are they loosey goosey? Do they do things by the seat of their pants? Are they people who show up early? Are they people who take a lot of time off? They put these cultural differences in last place when they think about it.
However, it's my opinion that if you fast forward four or five years down the road, the culture actually makes more of a difference in terms of the success of these organizations coming together. In the long run, a few dollars one way or the other in the selling price are not going to make a difference if everybody's gelled culturally and on the same page moving forward.
A good example of cultural misfit might be a difference in selling style. Suppose you have a sales department that is really big on entertainment and all that type of selling, and the sales reps don't really do the detail work. They're really out just entertaining and building relationships. I'm not saying that's wrong, but if the buyer has a culture where the sales reps do lots of detailed background work, fill out all the forms correctly, spend a fair amount of time in the office, that can be a mismatch that then leads to friction.
Avis: What's the typical timeline for a sale?
Hahn: Typical timeline is six to nine months. However, with that said, we've done some as quickly as three months. Sometimes buyers will come to us or sellers will come to us and they know who they want to sell to or which company they want to buy, but they don't know how to run the process or they just need guidance. They need an industry objective third party expert to help them through the process, and we'll do that. Sometimes that can be as short as two months, because we don't have that search process to find the other party.
On the other side of it, we've had deals that have closed after three years of work for various reasons. I can think of one where the buyer hired an attorney, who I'll call Uncle Charlie, who was literally the next door neighbor's brother. We knew we were in trouble when he said he can't do the work today because he's in municipal court. So the buyer hired the absolute wrong attorney, who cost everybody about eight months of time struggling with documents that weren't well constructed. That's the outlier, two or three years.