Many printers and graphic arts firms have expressed an interest in buying other companies as an efficient means of entering new markets or expanding market share in their current segments. According to at least one study from the U.S., about 40% of printers expect to purchase another company over the next few years.
If you’re in that group, and especially if this is your first acquisition, you need to be aware of several considerations. You probably already know you need to do thorough due diligence. Look for a pattern of growth and investment, well-trained managers, financials that are in good shape, data that backs up information you receive from the seller, acceptable debt levels, data about customers, accounts receivables, and so on. In short, examine everything you can about your acquisition for at least three to five years.
Beyond the basics, other factors can make the process proceed more smoothly. Consider the following.
An objective third party
Consider using an unbiased third party to approach the seller and begin the negotiating process, especially if you have never done an acquisition before. An objective outsider will take the emotions out of the transaction for both you and the seller. You’re buying a business, but you’re also dealing with the emotions that arise when the sum total of someone’s professional life are being assessed.
A mergers and acquisitions adviser may also be able to identify the best fit for your existing operation and will be able to undertake the initial inquiry discreetly.
Clarify your strategy
Before you even approach a potential buyer, be clear about your strategy. Why are you buying? Is it to expand into new market segments or geographically? How does a potential acquisition help you achieve your long-term goals? How quickly will the acquisition be accretive to your bottom line? How will you define success? Make sure you apply these strategic filters to everything you do.
Start thinking about the integration process as soon as possible
Don’t try to scrimp on this process. Resources dedicated to the integration process is the single most effective investment that a company can make when buying another company.
Running a company and managing an acquisition require different skill sets so consider getting help with the integration, or if you can, assign someone in-house to lead the effort. It’s a good idea to put a figure —perhaps 10% of the purchase price—on the integration. List all your expected expenditures and remember the one-time costs of potential layoffs, re-branding, or other huge expenditures.
Formulate a plan for how you will physically integrate the new entity into your existing operation. How will you accommodate any equipment and staff? What about the increased production? How will you get rid of redundancies? Planning up front will lead to a successful merger.
Formulate a financing strategy
You will look to purchase a company with its financial house in order, but if you’re financing the deal, you will need to demonstrate similar order for three to five years. You may even be asked to provide detailed plans for what your post-transaction organization will look like.
Acquiring real estate may help you secure financing, as banks like to lend against hard assets that can be collateralized. But you should also be informed about other sources of financing available and how to access them. You may have to get creative and put a host of financing sources together to arrive at the sum you need not only for the purchase but to meet the costs of integration. Again, a third party with specialty in putting financing together may help.
Explain yourself to the seller
If you’re approaching a seller, be prepared to tell them why you want to buy his or her company. Be prepared to talk about money and how you plan to finance the deal, manufacturing capacity, your plans for the employees, and how you plan to meet customers’ demands.