Merger and acquisition activity has become intense in recent years, especially for companies with strong flexographic capabilities. Our firm sells packaging and other plastics companies for a living. That is what we do, every day. And we have learned there is no single individual trait packaging and other plastics companies look for more commonly than great flexographic capabilities.
That means you, in the world of “flexo” today, are very likely in the right place at the right time!
If you’re potentially a seller of your company today, you’re in a lucky and enviable position. But even if it’s not the time for your organization to sell, there can be tremendous benefits to using the trends and the impetus of acquisition growth today to help build your company’s value.
It’s About Building Value
How do we know that value, and what it can mean to owners? Look at the huge recent successes. Sonoco acquired PPI in North Carolina in 2016 for an astounding price. Why? The company boasted about the great flexographic strength that move gave it. We marketed a company in 2016 (which was a smaller company—around $25 million in sales) which brought offers that ranged from seven to 11 times EBITDA (earnings before interest, taxes, depreciation and amortization). And of all inquiries we have from buyers, day in and day out (literally almost a thousand per year), there is no single factor more beloved today than great flexographic capabilities.
Great merger and acquisition strategies build value. They let the incoming players combine in ways to make 1+1=3. Companies can cross-sell new and budding technologies and capabilities to customers of “sister” companies, to make greater value for the combination. They can leverage the strengths of combining players to allow them to do more and greater things than they could ever have achieved alone. They can offer staff, who may have been top-bound by the financial constraints of funding growth capital, the chance to excel to amazing new heights!
So—given that there is opportunity, what can owners do to enhance and shore up value for the future? We tried to nail down our firm’s “favorites” of all of the wide-ranging attributes buyers look for, that lend value to an organization.
The object of the game is to build and nourish those areas of special capability that make you the kingpin provider with specific and hard-to-duplicate strengths. Maybe it’s high-definition printing capabilities. Maybe it’s the ability to successfully imprint flexo images on rising or newly developed types of surfaces. Reward and nurture consistent effort toward development of new and better technologies. Let it be known very clearly to your people that the leading-edge achievements in flexo capability are highly valued within your organization.
As we talk with buyers day in and day out, almost half mention, within the first three sentences of discussion regarding their targets, that they want a “niche” player. That means there is serious premium value in the ability to do something many others can’t do. Build your internal reward systems to nurture that spirited and forward-thinking look at what you produce. It will have tremendous value in the end, for both the owners and all ranges of the people who work with them.
Nurture Second Tier
All buyers give careful consideration to the potential for continued ongoing development of any company they may buy. Much of that attention naturally falls toward a hard look at the potential of second-tier people in house. There is always some worry that “cashed in”owners may decide to not stay after an acquisition. That worry is far less if there is talented and enthused second-tier staffing in place. That applies to every area—administrative management rolls, key sales staffing, technical and production staffing, and really all areas of management oversight and creative development.
Establishment of strong incentive systems and effective training programs pays for owners, both by producing more solid financial results for the operating company to enjoy, and by enhancing longer-term value (including both cash value for owners and longer-term prospects for key people).
The seller who knows his or her company’s strengths in the marketplace, as well as the risks to its future, is far more powerful and valuable than shorter-sighted competitors. We encourage owners and management teams to look at least once a year at overall position by enumerating strengths, weaknesses, opportunities and threats for the future (commonly referred to as a SWOT analysis). If your eyes are wide open, and you anticipate the likely future pressures and changes that you may face in future years, your prospects for being truly “ready” for those changes improve dramatically.
We sold a company some years ago to a buyer who purchased on the same day the two largest competitors within its segment. As sellers for the one company, we had no idea a closing with our largest competitor was scheduled to occur, on the exact same day. Our client was a $30 million company, and the competitor was around $50 million. Our client closed the sale for an astounding $80 million—all cash! The competitor sold on the same day to the same buyers for $50 million. The difference was entirely in our client’s superb job of preparing and positioning for the future. Readiness was clearly demonstrable and paid enormous dividends to our seller.
The timing for the great flexo company of today is better than ever before in history. There are changes coming, and new technical evolutions will further broaden the market. To do well for your owners and your staff, the process of building value in your company and taking advantage of the explosion in the M&A market will pay off like never before. Flexo companies: You’re hot stuff. Take advantage of your position today, and use the marketplace to grow and flourish!
About the Author: Deborah Douglas is the managing director of the Douglas Group, one of the longstanding leaders in this business segment for middle-market company mergers and acquisitions. Deborah is also a professional speaker and published author of two books. Douglas Group has been active for 26 years, and has closed more than 95 percent of the transactions undertaken by the firm.