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Obstacles in an Acquisition

Published in the NPSOA Magazine

Obstacles in an Acquisiton

I was on a panel a few years ago and was asked the question, “What are the obstacles that you see today when a print/sign owner is acquiring another shop. A majority of my consulting time is spent helping print/sign owners buy or sell their shops and I will share my experiences with some of the obstacles and ideas on how to overcome them.

Here are the major obstacles that I encounter:

Business Overvalued – most sellers feel their business is worth more than a willing buyer will pay for it. After all, the seller has years invested in their business and it’s hard to swallow that their business is not worth what it may have been worth before the recession. Since a majority of printing businesses are purchased as a tuck-in (the buyer is essentially buying their book of customers, hiring selected employees and purchasing perhaps some of their equipment and any usable inventory), traditional valuation methods may not be relevant. The best way to overcome this obstacle is to get a formal valuation done or hire a professional to act as an intermediary.

Too Much Debt – unfortunately many sellers survived the pandemic by getting government money via PPP forgivable loans and ERC payments. Many still have leases that the amount owed is more than the equipment value. One way to overcome this obstacle is for the buyer to assume the debt or re-negotiate the lease with the financing company. If the buyer is strong financially, banks and financial leasing companies will re-assign the debt and in many cases reduce it.

Property Leases – landlords are usually willing to have the lease broken if they are convinced that the selling printer will have a problem continuing to pay the rent for the remaining term. Give the landlord notice that a sale is impending and negotiate a settlement which may be mean paying only having to pay two or three months. If the seller owns the property, it could be an opportunity for the selling printer to sell the building or lease out to another business who can pay the proper rent.

Equipment overvalued – most buyers do not want all the equipment plus the seller thinks the equipment is worth a lot. Today there is a glut of equipment (especially offset presses and related plate makers, plus software rips are almost worthless). In most cases, buyers only want a few selected pieces of equipment. One way to overcome this obstacle is for the buyer to purchase all of the equipment and then immediately liquidate via an auction after the closing, keeping only what they want. There are auction companies that will value the equipment and even guarantee a minimum dollar value.

High Concentration of Sales in a Few Customers – seller may not see this as a risk as they may have operated that way for many years. Buyers get nervous as the loss of one of the top customers could be significant erosion in the sales they are purchasing. Overcome this obstacle by paying for the deal based on sales that are retained. It almost the rule today, that a part or the entire purchase price is based on paying commissions or royalties for retained sales. These payments are called earn-outs.

Outside Salesperson May Leave - many times the seller has a salesperson or two that are responsible for a high portion of the company’s sales. Buyers fear that when the business is purchased, one or more of the sales people will leave and go with a competitor or broker the work on their own. Two ways to overcome this obstacle are to require as part of the deal, that the sales people sign a non-compete with the purchasers before the closing and offer a bonus at the end of year 1 and perhaps even subsequent years if they stay on and hit sales goals.

Pricing Differences – usually this is not as big a deal as buyers may think. Most jobs are not exactly repeated and unless the seller is so underpriced, the buyer can either continue to honor the old prices for a period of time or raise them gradually. Buyer may also take a position that they know they will lose some business due to price and consider that loss in the way the deal is put together.

Selling Owner Wants to Stay On – this can be very tricky especially if they want to be in sales and paid commissions. The buyer cannot pay a full commission plus pay the selling owner for the accounts. You can overcome this obstacle by paying a small commission on their existing clients and a much higher one on new business or on growth of those accounts.

Financing the Deal – sellers want to have all cash at closing which is extremely rare except in highly distressed situations when the cash is very little or when a very large printer buys a small printer. Sellers need to be in a position to hold a note or to be paid royalties or commissions on retained business. Today, buyers hold the upper hand as there are many more companies hoping to sell that companies looking to buy. One way to overcome this obstacle is to guarantee a minimum amount on the royalties or commissions. That guarantee may be based on what how much of the sales that both parties feel safely will move over to the buyer. Another technique is to not put a cap on the total commissions or royalties or extend the payment period if the minimum is not met. My experience has shown that retained sales are between 50% and 125% (yes a few deals had sales increase) of the previous 12 months sales. On average, I would estimate that 80% of the sales remain in the deals although that can vary depending on the health of the seller and the current economy.

Transaction Costs – usually the seller and buyer pay their own transaction costs for the deal. The costs are for professionals such as attorneys, accountants, consultants, advisors and brokers. If the seller is distressed or has little cash, the buyer may offer to pay all the transaction costs as they need to be paid by or at closing. Buyer will though only do this if they are getting concessions on the entire deal and incorporate those costs in their total purchase price of the acquisition.

Egos – sellers are proud people and many have built their business from scratch many years ago or perhaps are second or third generation print owners. Buyers have to be aware that they have to be sensitive to the selling owner’s having to exit the business gracefully.

I am sure there are many other obstacles that our readers have experienced, and I would love to hear about your experiences in M&A. Any obstacle can be overcome. I would recommend using professionals who have the experience to make the deal work.

One tip though, is to never “fall in love with the deal” – always be prepared even at the last minute to back away. Don’t overlook red flags that come up especially during the due diligence period. Acquisition is a wonderful way to grow your business especially in today’s environment. Just do it smartly and slowly.

Mitch Evans is a management consultant and trusted advisor who works with graphic company owners, CEOs, and entrepreneurs. Mitch is a managing director at Graphic Arts Advisors LLC which specializes in Mergers & Acquisitions (valuations, buying and selling, mergers and non-bankruptcy orderly wind-downs). Mitch is also a partner with Mike Kind in The Next Level Group which facilitates formal top executive peer groups for leadership, business growth, including revenue growth, improved internal efficiencies, and greater profitability. Please contact him at or call 561-351-6950.


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