Friday, July 30, 2010
Frequently Asked Questions
Is M&A for big companies only?
No. Any size company can participate in M&A.
Are there lists of companies for sale?
Yes, through business brokers, but often those are listings of candidates that are improperly valued and not always the best companies. The best opportunities exist among owners of companies networking with each other and through professional contacts to explore how they can achieve their mutual objectives. In the printing industry, it’s the buyers who need to raise their hands first and say they want to create a strategic relationship with another company. Why? If a company says it wants to be bought, there is fallout with vendors, customers and employees.
Are there print businesses for sale that are not publically listed?
Yes, most are not listed. NAPL can assist you in finding businesses for sale.
How do I value my business?
Unless you’re doing valuations in the printing industry every day, you don’t know. It’s important to get an objective value of your business based on solid industry knowledge rather than emotion.
There are two primary ways to value printing companies. Valuations are based on earnings and on the company’s underlying assets. Earnings are more complex to ascertain for a private company than for a public company because you have to understand the nuances of ownership compensation and the other unique attributes of family businesses. Most printing companies, unless they are industry leaders, have more value in their underlying assets than in their quantified earnings. NAPL puts a value on customer relationships through a unique analysis of the type of work done by the company, the nature of its customers, the growth potential of accounts and customer connectivity. NAPL can also provide equipment appraisals based on current market conditions as one element of the overall valuation.
How important is it for the acquiring company to have financing?
Not very. Except when leading companies are being sold, most transactions do not involve significant amounts of cash at closing. The reason is that NAPL guides buyers on how to structure the transaction so that the seller is allocated a portion of the risk to ensure that the merged business will succeed.
Does NAPL represent buyers and sellers?
NAPL client members tend to be buyers, because they are using growth by acquisition as part of a larger strategic plan. NAPL also works with owners who wish to transition from an ownership position while preserving capital and maximizing value.
Is NAPL compensated on a percentage of the deal?
No. This is a key differentiating factor between NAPL and other M&A resources. NAPL approaches each engagement as a project with pre-determined fees. Percentages create an inherent conflict with the M&A provider looking to create the highest commission rather than provide the best outcome for the client.
How does succession planning fit into all of this?
Some owners prefer to sell the business to their family via a succession plan. These can be more difficult transactions as they involve family emotional issues as well as the lack of inherent savings through the consolidated resources of two companies into one. NAPL can provide an objective valuation of the company and help to manage generational expectations.
If I acquire a company do I have to take on their debt?
No. However, some acquirers view reasonable debt assumption as an opportunity. You may want to assume some of the other party’s debt as a way to structure and finance the transaction. We caution potential acquirers to avoid focusing on the seller’s debt too early in the process. They should first focus on chemistry and strategic fit. The debt can be addressed and dealt with in the context of structuring the transaction.
What is a “tuck in”?
A "tuck in" is predicated on "tucking in" the sales of one company into the infrastructure of the buyer. Profit expectations are based on the consolidation savings and the revenue enhancements. The incremental profit to the buyer is used to formulate a "price" for the general intangible assets of the seller, the customer relationships. The "structure" is based on risk allocation between the parties, meaning, what happens if things don't work out as planned. One of the keys to success of a "tuck in" strategic acquisition is that the customer requirements of the seller have to fit the capacity and infrastructure of the buyer.
What are the most important considerations in evaluating a strategic partner?
Two things – chemistry between the parties and strategic fit. Strategic fit is defined by consolidation savings and revenue enhancement for the partners.
What if both companies in a strategic transaction are NAPL clients?
Given NAPL’s strong market presence in the rapidly consolidating printing industry, this is a common situation these days. Our policy is to provide independent, objective advice. Any confidential client information that belongs to either company will remain confidential. Our advice in this matter reflects both parties’ interests but we are mindful of potential conflicts. Feel free to seek your own advisors if concerned about this relationship. If the transaction process reaches the “legal stage,” you will each need to have separate attorneys to handle paperwork and closing mechanics.
Can I sell my business if I have a lot of debt?
NAPL can guide you on options for restructuring the debt to enable you to maximize the value of your assets.
How much effort will it take me to get an NAPL consultant up to speed on my situation?
Less than you think. The typical client is able to respond to standard information requests within a few days of beginning this process. Most clients are able to put a package together without creating new data or engaging their staff, with the possible exception of the financial person. We’ll then call or email with a few questions.
Will someone from NAPL come out to visit my company?
Preferably yes, but it is not required except in cases of formal business valuation. The site visit is typically recommended because not all companies are alike, and we know how to appreciate and articulate the subtle nuances that are only apparent during a walk-through by an experienced industry-specific professional.
When would a visit be done?
Some clients prefer that we visit early in the process as part of relationship building. Others prefer that we get together when it is time to discuss the initial findings of our analysis. It can be done either way.
How do I maintain confidentiality when an NAPL consultant visits my company?
Keep in mind that NAPL regularly visits hundreds of companies each year, so it is quite normal to say that someone from NAPL is taking a tour of the facility. Another approach is to say we are a potential customer. Some clients prefer to announce that an NAPL visitor is in the shop, without saying anything about the purpose.
How can you determine the value of my business without spending a lot of time on site?
Because we specialize in the print and graphic communications industry as well as being experts in business valuation. We know the right questions to ask and, more importantly, we know how to gauge the answers. This saves time as clients don’t have to “educate us” about their industry.
My regular accountant does business valuations. Shouldn’t I use them since they already know my company?
Some CPA firms may be capable of providing valuations that are technically correct. However, having an NAPL specialist provide the business valuation is critical because it reflects industry-specific insights, guidance, and perspective. And, keep in mind, general intangibles are a very valuable asset that is not even on the balance sheet; a CPA is not qualified to appraise your customer relationships.
Doesn’t the value placed on a business come down to a formula such as a multiple of EBITDA?
No. If you think so, then let’s have a conversation offline to dispel this notion once and for all.
Why shouldn’t I use a business broker to sell my company?
Business brokers do not have the industry specific knowledge and contacts to ensure that you transition from ownership in a way that maximizes the value of your asset.
Do most of your valuation projects lead to a sale of the business?
Definitely not. Most are for planning purposes. Valuations are one component of M&A strategic transactions. Outcomes are affected by chemistry between owners, strategic fit, and non-valuation considerations more than anything else.
How should we communicate during this engagement?
We can discuss sensitive matters in a private office or a conference room at your location. We have had meetings at the client’s house and at the offices of their accountant or lawyer. Others prefer to come to NAPL offices and get away from the distraction of day to day operations. Also, you can set up a personal email account just for this process and schedule telephone conferences ahead of time so you can be in a quiet place.
When does a valuation engagement end?
The engagement ends when you want it to end. Sometimes that means it ends after discussion about the report and its findings. But more often than not, our clients view NAPL as a trusted resource beyond the valuation project. It would not be surprising to work together beyond the specific engagement.
What is the best outcome for NAPL?
A satisfied client. We would also be happy to receive a written testimonial.
How do we get started?
Sign our engagement letter and fax it back. In addition, be sure to tell your spouse and partners that you’re doing this. It helps to eliminate problems down the road.
More questions? Call us. We’ll be happy to confidentially discuss your goals, plans or desires for your business.
No. Any size company can participate in M&A.
Are there lists of companies for sale?
Yes, through business brokers, but often those are listings of candidates that are improperly valued and not always the best companies. The best opportunities exist among owners of companies networking with each other and through professional contacts to explore how they can achieve their mutual objectives. In the printing industry, it’s the buyers who need to raise their hands first and say they want to create a strategic relationship with another company. Why? If a company says it wants to be bought, there is fallout with vendors, customers and employees.
Are there print businesses for sale that are not publically listed?
Yes, most are not listed. NAPL can assist you in finding businesses for sale.
How do I value my business?
Unless you’re doing valuations in the printing industry every day, you don’t know. It’s important to get an objective value of your business based on solid industry knowledge rather than emotion.
There are two primary ways to value printing companies. Valuations are based on earnings and on the company’s underlying assets. Earnings are more complex to ascertain for a private company than for a public company because you have to understand the nuances of ownership compensation and the other unique attributes of family businesses. Most printing companies, unless they are industry leaders, have more value in their underlying assets than in their quantified earnings. NAPL puts a value on customer relationships through a unique analysis of the type of work done by the company, the nature of its customers, the growth potential of accounts and customer connectivity. NAPL can also provide equipment appraisals based on current market conditions as one element of the overall valuation.
How important is it for the acquiring company to have financing?
Not very. Except when leading companies are being sold, most transactions do not involve significant amounts of cash at closing. The reason is that NAPL guides buyers on how to structure the transaction so that the seller is allocated a portion of the risk to ensure that the merged business will succeed.
Does NAPL represent buyers and sellers?
NAPL client members tend to be buyers, because they are using growth by acquisition as part of a larger strategic plan. NAPL also works with owners who wish to transition from an ownership position while preserving capital and maximizing value.
Is NAPL compensated on a percentage of the deal?
No. This is a key differentiating factor between NAPL and other M&A resources. NAPL approaches each engagement as a project with pre-determined fees. Percentages create an inherent conflict with the M&A provider looking to create the highest commission rather than provide the best outcome for the client.
How does succession planning fit into all of this?
Some owners prefer to sell the business to their family via a succession plan. These can be more difficult transactions as they involve family emotional issues as well as the lack of inherent savings through the consolidated resources of two companies into one. NAPL can provide an objective valuation of the company and help to manage generational expectations.
If I acquire a company do I have to take on their debt?
No. However, some acquirers view reasonable debt assumption as an opportunity. You may want to assume some of the other party’s debt as a way to structure and finance the transaction. We caution potential acquirers to avoid focusing on the seller’s debt too early in the process. They should first focus on chemistry and strategic fit. The debt can be addressed and dealt with in the context of structuring the transaction.
What is a “tuck in”?
A "tuck in" is predicated on "tucking in" the sales of one company into the infrastructure of the buyer. Profit expectations are based on the consolidation savings and the revenue enhancements. The incremental profit to the buyer is used to formulate a "price" for the general intangible assets of the seller, the customer relationships. The "structure" is based on risk allocation between the parties, meaning, what happens if things don't work out as planned. One of the keys to success of a "tuck in" strategic acquisition is that the customer requirements of the seller have to fit the capacity and infrastructure of the buyer.
What are the most important considerations in evaluating a strategic partner?
Two things – chemistry between the parties and strategic fit. Strategic fit is defined by consolidation savings and revenue enhancement for the partners.
What if both companies in a strategic transaction are NAPL clients?
Given NAPL’s strong market presence in the rapidly consolidating printing industry, this is a common situation these days. Our policy is to provide independent, objective advice. Any confidential client information that belongs to either company will remain confidential. Our advice in this matter reflects both parties’ interests but we are mindful of potential conflicts. Feel free to seek your own advisors if concerned about this relationship. If the transaction process reaches the “legal stage,” you will each need to have separate attorneys to handle paperwork and closing mechanics.
Can I sell my business if I have a lot of debt?
NAPL can guide you on options for restructuring the debt to enable you to maximize the value of your assets.
How much effort will it take me to get an NAPL consultant up to speed on my situation?
Less than you think. The typical client is able to respond to standard information requests within a few days of beginning this process. Most clients are able to put a package together without creating new data or engaging their staff, with the possible exception of the financial person. We’ll then call or email with a few questions.
Will someone from NAPL come out to visit my company?
Preferably yes, but it is not required except in cases of formal business valuation. The site visit is typically recommended because not all companies are alike, and we know how to appreciate and articulate the subtle nuances that are only apparent during a walk-through by an experienced industry-specific professional.
When would a visit be done?
Some clients prefer that we visit early in the process as part of relationship building. Others prefer that we get together when it is time to discuss the initial findings of our analysis. It can be done either way.
How do I maintain confidentiality when an NAPL consultant visits my company?
Keep in mind that NAPL regularly visits hundreds of companies each year, so it is quite normal to say that someone from NAPL is taking a tour of the facility. Another approach is to say we are a potential customer. Some clients prefer to announce that an NAPL visitor is in the shop, without saying anything about the purpose.
How can you determine the value of my business without spending a lot of time on site?
Because we specialize in the print and graphic communications industry as well as being experts in business valuation. We know the right questions to ask and, more importantly, we know how to gauge the answers. This saves time as clients don’t have to “educate us” about their industry.
My regular accountant does business valuations. Shouldn’t I use them since they already know my company?
Some CPA firms may be capable of providing valuations that are technically correct. However, having an NAPL specialist provide the business valuation is critical because it reflects industry-specific insights, guidance, and perspective. And, keep in mind, general intangibles are a very valuable asset that is not even on the balance sheet; a CPA is not qualified to appraise your customer relationships.
Doesn’t the value placed on a business come down to a formula such as a multiple of EBITDA?
No. If you think so, then let’s have a conversation offline to dispel this notion once and for all.
Why shouldn’t I use a business broker to sell my company?
Business brokers do not have the industry specific knowledge and contacts to ensure that you transition from ownership in a way that maximizes the value of your asset.
Do most of your valuation projects lead to a sale of the business?
Definitely not. Most are for planning purposes. Valuations are one component of M&A strategic transactions. Outcomes are affected by chemistry between owners, strategic fit, and non-valuation considerations more than anything else.
How should we communicate during this engagement?
We can discuss sensitive matters in a private office or a conference room at your location. We have had meetings at the client’s house and at the offices of their accountant or lawyer. Others prefer to come to NAPL offices and get away from the distraction of day to day operations. Also, you can set up a personal email account just for this process and schedule telephone conferences ahead of time so you can be in a quiet place.
When does a valuation engagement end?
The engagement ends when you want it to end. Sometimes that means it ends after discussion about the report and its findings. But more often than not, our clients view NAPL as a trusted resource beyond the valuation project. It would not be surprising to work together beyond the specific engagement.
What is the best outcome for NAPL?
A satisfied client. We would also be happy to receive a written testimonial.
How do we get started?
Sign our engagement letter and fax it back. In addition, be sure to tell your spouse and partners that you’re doing this. It helps to eliminate problems down the road.
More questions? Call us. We’ll be happy to confidentially discuss your goals, plans or desires for your business.