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Let's Make a Deal: Selling Your Printing Business

May 1, 1998 12:00 AM


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Thinking of selling your company? Here are some practical tips for a profitable sale.

The latest industry advancements in technology coincide with tremendous merger and acquisition activity within the printing industry. The large capital investments required to stay in competition are a driving force in many owners' decision to merge, buy or sell. Many printers either want to divest themselves of the responsibility for capital investments or find they need an outside infusion of capital simply to stay in business.

Accordingly, there are several factors that graphic arts executives should consider well in advance of an anticipated sale in order to portray their business in the best possible light. In fact, the key to "pre-sale positioning" is to deal with any negative aspects of a business that might hinder or prevent a sale. Being well prepared can make the difference between a smooth, profitable sale and a sale gone bad by stumbling across a "deal breaker" at the last minute.

One profitable Midwest commercial printer experienced such a "bad sale" when management neglected to obtain a confidentiality agreement, or a written time frame from the buyer. As a result, the buyer leaked information regarding the sale.

Customers and employees defected after hearing the news, and the owner lost one-third of his business, making the company unprofitable. Having already signed a letter of intent locking him into the original agreement, the owner was forced to sell at a loss of millions of dollars.

You can avoid encountering such a deal breaker by addressing some important issues.

First, clearly understand why you want to sell. Most people don't envision selling from a "sale planning" standpoint, but rather for personal reasons. Ask yourself if the decision to sell is strictly economic or strategic. Are family pressures and/or business problems making this decision an emotional one? Because motivation to sell is generally driven by personal issues, the time to sell, from a business standpoint, may not be optimal.

Also consider the future. If you are the founder and owner of your company and have worked in the business every day for years, what will you do when you sell? Do you have plans to retire? Travel? Buy another business? Remain with the company in some capacity? Selling your business doesn't necessarily mean you have to leave, so don't let the prospect of having no job influence your timing.

Deciding when to sell is not always obvious to an owner. Age, illness, family pressure or business problems often dictate timing. In fact, the best indicators should be the financial climate, buyer profiles and market trends.

One of the surest ways to maximize a business' worth is not to wait too long to sell. Statistics show that the right time to sell your business is when it is on its way up. By selling at this time, you can obtain a better price--mostly because the buyer is getting upside potential.

Management cannot be changed overnight. If you are the owner and chief decision maker, you should have secondary management personnel in place who can run the company in your absence. Many prospective buyers will not even consider purchasing a company if the only person capable of running it will leave after the sale. Buyers want to know that there will be stability and continuity.

In the same vein, employees, especially the sales force, should remain on board after a sale. If the owner is a key salesperson on certain accounts, he or she should make sure another salesperson is integrated into those accounts well in advance of a sale. Owners also should have non-compete agreements with their sales force.

Conversely, excessive management or supervisory personnel and generous bonus programs, which may negatively affect profitability, are not encouraged. The key is to strike an even balance. Ensuring that a facility is adequate for future growth--that there's an option to renew the lease, that it is clean, organized and in good repair, and complies with all regulatory requirements--is an obvious consideration. However, it is often overlooked and remains a top deal breaker in the industry.

For example, if a company has less than one year left on a lease, and the building's owner does not want to renew, the deal will be adversely affected.

Because moving printing equipment can be an expensive proposition, any variable pertaining to your facility likely will impact the sale price. In these cases, the ideal buyer is one who will merge and liquidate the equipment, likely moving the business across town.

Fortunately, most financial situations can be remedied to help facilitate a sale. In general, your financial records should be in order, with statements compiled, reviewed and audited regularly to provide added comfort to the buyer and his or her financing sources.

You should also have tight controls on receivables and payables. Buyers do not pay for receivables over 90 days and will discount those over 60 days.

Inventory should be current and accurate. Also, properly explain nonrecurring income or expenses and record sales when necessary. Plan to sell excess or unused capital assets. If financing the sale, make sure the buyer releases the owner from any personal guarantees on company notes or leases. Recasting the income statement may be one of the most important tools to show real income. A balance sheet that shows book values and market values is most advantageous.

It also is important to determine tax liabilities with the sale of a business. If you are incorporated, you must comply with all corporate formalities. Naturally, compliance with all local, state and federal agency laws, rules or policies is mandatory, and securing regulatory approval may be necessary. If you have other partners or stockholders, be sure that everyone agrees to the sale.

If you have built up your operation from scratch, dedicating some 30 to 40 years to it, there may be a tendency to lose perspective when determining a fair selling price. It is essential to remain realistic when it comes to determining the value of your business. It also helps to seek the input of a reputable third party experienced in valuating printing businesses. Also, flexibility to bend on terms or on structuring the sale is important. Achieving a satisfactory sale is more likely if you begin at a reasonable point.

The three elements that have a bearing on price include the size of the company, its profitability and the value of its assets. Generally speaking, a printing operation will sell for between four and six times its cash flow. Even companies that have liabilities that match or exceed assets, can be sold successfully. These are excellent opportunities for mergers in which sales can be transferred to the buyer.

Approximately 33 percent to 40 percent of printers use an intermediary when selling their businesses, and that number is on the rise. Printers are finding that a good attorney or accountant can't always cover every detail inherent in an acquisition or merger. The right advisor, however, can make sure all the bases are covered and assist in making the best deal. There's usually a buyer for every business and an advantageous selling situation for all parties. It's simply a matter of finding the best match.