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What Happens Next?

PIASC friends…

The Management Guys—Gerry Michael and Bob Lindgren would be happy to help you think through your options. Give us a call.


You’ve worked hard all of your life, building your printing business from scratch into a growing success. However, now you’re in your 50’s and you have begun to think about the future. Where is the business going to be in ten or twenty years? How does that fit with your personal plans for your own future? What about your family—where do they fit into this story?

You could continue on just as you are, but you worry about successor management as well as the likelihood of the need for substantial new investments to stay competitive. If the business continues to grow and stays profitable, funding needed investments will be doable, but successor management may be a problem. If you have family members in the business, they may be the answer, but realistically entrepreneurial skills are usually not inherited. Also, if there are multiple family members involved, they will have to be able to work together and make the tough decisions which seldom are made by committees. Also, they will likely have spouses who at some point in the future may have an impact through invidious comparisons.

Having weighed all of this, you may come to believe that the sale of the business is the best and most realistic solution. This can produce a steam of proceeds which can fund your retirement, while actually enlarging the prospects of your people. Obviously, this can’t be accomplished by waiting for the phone to ring. Serious thought has to go into selecting the right buyer. The “right” buyer is one who is usually in the same business your firm is in with similar equipment, skills and customer base. This is important because if the buyer is entirely different, it will be difficult for them to do as well as your firm does now. If they can’t, they won’t be able to pay a fair value for it. It’s also critical for a successful transaction for the parties to be comfortable with each other. Since you wish to maximize your value, the buyer should be larger than your firm. Generally, this will enable them to produce your work and serve your customers from their facility. This enhances your value since there future profits will be greater than yours since the sale will eliminate your overhead. Also, you will be able to sell the now excess equipment and plant.

The projection of the present value of incremental profits that a particular buyer might receive is central to the process. It’s essential that you get professional assistance from a qualified person knowledgeable with our industry to help you with this. Otherwise, you may understate that value leaving money on the table or overstate it leading to a failed negotiation.

Once, you have identified the target buyer, you will have to think about the price for your business. For most printers this will be in the range of three to four times the additional (incremental) profit that the buyer will earn from operating your business in their plant. This should be a significantly larger number than your own profit because the transaction will eliminate your overhead. Remember that your asking price should be driven by a careful analysis of the buyer’s gain. It also should be somewhat on the high side (but not unreasonably so) as a negotiation will occur and there will be give and take.

It is essential to understand that the sale of your business is fundamentally different from the sale of your house. Your house is a “hard” asset with a reasonably discernible market value. Your business is a “soft” asset as it value resides in the customer relationships and their willingness to buy printing in the future. Neither you nor the seller can guarantee that. As a result of that fundamental reality, if wish the buyer to pay cash on close (like the sale of your home), you will have to accept a significantly lower value. On the other hand, if you are willing to accept part of the purchase price as a percentage of retained sales, the value will substantially increase as you are sharing in the risk of the transaction.

There are situations where the seller is losing money on a regular basis and in danger of becoming a bankrupt. Even in this case, the acquired business can produce incremental profits for the buyer. Since the seller has nowhere to go except up, a sale for a percentage of retained sales maximizes value to the seller and makes it attractive for the buyer.

The major implication of this is that both the seller and the buyer have to be totally committed to retaining the customer base and, in fact, growing it. That means that the seller’s pricing policy must be retained by the buyer as a noticeable up move will cause the customers to shop and a reduction is simply money left on the table. Careful consideration should be given to retaining the seller’s persona as the message should be “nothing has changed.” For the same reason, retaining the seller’s force is essential and is usually possible unless the buyer cuts commissions.

Once the parties are comfortable, the details must be worked out. As was observed earlier, the price is generally in the range of three to four times the buyer’s incremental future annual profits, but this is heavily influenced by the form of the deal. The number will be increased by the presence of seller financing and contingent payment (percentage of retained sales). To make this all work, the seller will have to be active in the business for at least a year and should be compensated for it.

The Management Guys
Bob Lindgren, (818) 219-3855   |   Gerry Michael, (206) 310-1119


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