20 Things We Learned From the AWA Mergers and Acquisitions Forum

Posted by Rock LaManna

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The LaManna Alliance just returned from the AWA Mergers and Acquisitions Executive Forum in Chicago, where we picked up some important nuggets if you’re a mid-sized packaging business.

A little background on the AWA forum:  Discussion was focused on mergers and acquisitions in the resin and fiber-based packaging, labels, coating and converting sector.  It gathered together private equity firms, investment bankers, attorneys, packaging company entrepreneurs, and strategists such as the LaManna Alliance.

I spoke during the event on “Finding the Synergistic Buyer,” emphasizing the importance of understanding the qualitative nature of an operation. Much of the focus of the forum was on financials, and our emphasis on the importance of management and leadership was echoed by other speakers.

So without further ado, here are some of the highlights and nuggets we’d like to pass along.

  1. The packaging sector has proven to be remarkably resilient, even through the economic downturn.  Many private equity investors and investment banks look favorably upon the sector, and view it as a source of slow but steady growth.

  2. In North America and Europe, growth is in the 1.5-2.5% range, while in Asia and Latin America, growth is booming at 9% and above.

  3. The graphic arts market niche (car decals) is projected to grow in the 8-13% range.  Specialty tapes were also projected to have growth rates around 14%.  In other words, specific niches are red-hot for investors.

  4. Because of the converting sector’s reliable growth, other sectors, such as commercial printers, are looking at strategic acquisition of label companies and other niches.

  5. Consolidation in several sectors is causing private equity firms to look at mid-size and smaller businesses.  Instead of big-game hunting, these firms are now looking for smaller deals with higher multiples, so they’re eyeing up the hot niches with great interest.

  6. The amount of M&A activity has been slowed over the last few years, and many of these private equity firms are facing looming deadlines with the businesses they’re holding in their portfolios. One private equity representative labeled these “zombie funds.”

  7. Investment banks have been holding onto enormous amounts of capital since the recession, and many need to spend it or the money will lose its “capital” designation.  In other words, banks are looking to lend money.

  8. Attorney James Hill of Benesch Attorneys-at-Law referred to 2012 as the year of the “busted auction,” as numerous price disputes between sellers and buyers led to the failures of M&As.  It underscores the need for you to understand your company’s value and financials.

  9. Hill also noted that investors interested in strategic acquisitions are putting greater emphasis on the use of intermediaries like the LaManna Alliance.  Industry expertise is critical in helping sellers and buyers understand the nuances of each other’s respective operations.

  10. Over and over, we heard about the importance of having a strong management team in place if you want to sell your business.  One private equity firm declared it could elevate your multiple a full-point.

  11. “Fireside chats,” in which companies engage in informal meetings and discussion regarding a potential M&A, must be approached carefully.  If the discussions take too long or advance too far, a great deal of time and effort can be wasted if the deal falls apart.

  12. International competition and markets have caught the eyes of investors.  M&A transactions outside the USA increased from 215 in 2001 to 468 in 2012. 

  13. Ian McCullough of Price Waterhouse Coopers talked extensively about CEOs looking for new areas of opportunity, noting that 50% of CEOs entered a strategic alliance.

  14. The M&A process is now including more people with operational experience, including transition teams that understand how to make a deal successful after the close.

  15. Many private equity firms and companies looking to make strategic acquisitions are not aware of the wide variety of high-growth niches.  

  16. Investors are hesitant to invest in a company built on the foundation of one person.  The business built by a patriarch or entrepreneur who has not created a strong #2 or a solid management team will have problems selling the business.

  17. The “soft stuff” has become increasingly important to investors.  The “soft stuff” includes how is a firm managed, and what its internal culture is like.  The importance of qualifying a “healthy” organization is now more important than ever.

  18. A strategic partner may pay a higher multiple for a business that will improve its own operations. A commercial printer looking to add-on a packaging company as a synergistic acquisition for their organization might be willing to pay a multiple of 7.2, while a private equity firm would only pay 6.8.

  19. Much emphasis was placed on dealing with a large, family business.  It seems like the private equity groups and investment bankers are starting to realize that there is a difference between Wall Street and Main Street.  One emphasized how a family business is not impressed that you went to “Wharton Business School” or that you own an expensive suit.   

  20. An even greater emphasis is being put on the transition team and the management structure put in place after the close of a deal.  Many advocated “stay bonuses” for top managers, to ensure the operation continues to run smoothly.

Because we work to help businesses in the printing and affiliated industries improve their business, I am not a pure M&A player.  We are committed to helping our clients and produce a win-win situation, not to just achieve a transaction.  

This mentality may have been ignored by attendees at forums like AWA’s in the past.  Now it’s considered a necessity.  Investors are beginning to realize that for a deal to be successful, they must believe in you and care about the future of your business.  It’s a moment long overdue.


Photo by: IDEA eSolutions

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Topics: M&A