2017 Nov/Dec

Selling Your Finishing Business – An Inside Look

by Rock LaManna, owner, LaManna Alliance

A family affair: Brad Van Leeuwen, at right, with his sister Lisa and brother Craig. All three worked in the business at Trade Print Finishing.

For most people, a comfortable retirement is the goal, and for business owners, this includes either passing their legacy on to family or selling. No matter what, everyone must exit sooner or later. How successful that transition is depends entirely on the path chosen.

When selling a business, it’s important to keep in mind that when things feel too good to be true, they usually are. This was the case for Brad Van Leeuwen, former owner of Trade Print Finishing, a trade finisher offering foil stamping, UV coating and other finishing services.

Van Leeuwen opted to oversee the sale of his business himself rather than consulting an outside party to assist in going over all the details of the fine print. As a result, he experienced several headaches that could have been avoided.

Seller beware

Everyone is familiar with the phrase “buyer beware.” However, throughout the selling process, business owners should keep in mind the phrase Caveat Venditor – seller beware. This is especially true for situations like the one in which Van Leeuwen found himself.

Van Leeuwen didn’t make any one major blunder. It was more like death by a thousand paper cuts. All that stemmed from playing a game in which the rules are not all that apparent to a rookie – especially one going it alone.

The alternative to going it alone is to work with companies that act as merger and acquisition (M&A) intermediaries. Partnering with an outside source just makes good business sense, as there are simply too many rules to this game and too many entities out there looking to take advantage of uninformed sellers.

The selling of a business can be broken down into three important components: presale, due diligence and post-sale. Let’s take a look at how Van Leeuwen approached each step and where he could have benefitted from some outside help.

Presale: surprising revelations

In the process of selling his business, Van Leeuwen’s first move was a good one. He opted for an independent valuation, so he could understand just what his company was worth.

However, when the valuation was completed, it yielded the first surprise. Van Leeuwen always assumed that the sale of his business would be based primarily on the value of his assets. The valuation revealed that the true worth was based on the business profitability, not its big iron.

With this new perspective, Van Leeuwen began to see what offers could be garnered. This was the presale period, which can generally take two to three years to complete. During this time, many aspects of the sale need to be considered. This is where a third-party expert can truly make a difference, as there are many vital items that can be overlooked.

During the presale process, the following are very important areas of which to be aware:

Taxation issues
Sellers should consult with their finance and accounting team to determine how the sale of the business will affect their taxes. A myriad of potential landmines can occur if the deal isnt structured correctly.

Real estate
A common mistake for business owners is failing to account for the property as part of the transaction. If the seller owns the property the business is built upon, aim for a deal where the seller can walk away without any leasing requirements. There should be as few obligations or ties to the new owners as possible.

Growing sales
Don’t underestimate the need for growing sales. It’s far too easy to get caught up in the details of the transaction – especially if trying to orchestrate it without help – and take eyes off the bottom line. The business must continue to grow, all the way through the closing. If it’s declining, that gives the seller leverage to renegotiate the purchase price.

With the help of an M&A intermediary, sellers can be assured they are protecting themselves and their businesses as they move through the selling process.

Due diligence: the smooth operator

By his own admission, Van Leeuwen felt the due diligence process was very smooth. It’s no surprise as the buyer controlled the timeline and the process. Sellers can, and should, expect some bumps in the road during the due diligence process.

Having an attorney experienced in M&A to review a Letter of Intent (LOI) from prospective buyers can go a long way toward ensuring that all parties benefit – not just the buyer or seller.

But, don’t stop there. Sellers should work with an M&A intermediary and an attorney to perform due diligence on the buyer. This includes a review of their financials (as much as they will share), their management team and, most importantly, the company culture.

Sellers want this to work as much as the buyer, and it’s up to the seller to determine a culture that will mesh with that of the current business.

Post-sale details

The post-sale is all about transition. During the due diligence, a transition team should have been established both for the business and for the buyer. Now that the deal is done, it’s up to these two teams to initiate the transition process.

A lot of details will take place during this period, so it’s essential that both parties communicate and be as transparent as possible with the company as a whole. The primary focus here should be on ensuring the cultures mesh.

If due diligence has been done correctly and the business is paired with the right buyer, the big picture details will be handled. Now it’s time to co-exist and move on. Communication, teamwork and working together for bigger and better things can make this happen.

Lessons learned

As stated previously, everyone is going to exit their business at some point. It’s up to the individual to determine which path is the best. While the issues Van Leeuwen experienced can make the transition more difficult, that shouldn’t discourage those looking to sell.

In fairness, Van Leeuwen picked the right time to exit from a business. There was nothing wrong with his big picture – he just had some issues with the execution. That might have been avoided if he would have worked with a professional team through the sale. The right representation can protect everyone’s interest while ensuring a smoother transition and better outcome for all.

The LaManna Alliance provides print industries advisory and business broker services for printing and print-related businesses. For more information, visit www.rocklamanna.com.

The 2018 Economy and Print Markets

by Dr. Ronnie H. Davis, senior vice president and chief economist, Printing Industries of America

For 2018, will the US economy and print markets accelerate and pick up speed? Or will they break down and fall into a recession after over eight years of slow growth? Or, will they continue the steady but lackadaisical pace of the past eight years? A case can be built for any of these three scenarios.

A look at the economy

The biggest question mark facing the economy is everything going on in Washington regarding tax reform (corporate and individual), health insurance reform, postal reform and trade policy. The mix of these policy outcomes will shape the direction of the economy for the foreseeable future.

PIA’s view is that the economy most likely will continue to grow at a modest pace. However, if there were meaningful corporate tax reform, the economy would likely accelerate beyond the recent two percent growth trend – a 25 percent chance according to PIA’s outlook. On the other hand, continued political gridlock could combine with the aged recovery and cause the next recession – 25 percent likelihood in PIA’s outlook.

The trend scenario would mean a continuation of two percent growth in 2018 and 2019. A recession would mean a reduction in GDP of perhaps 1.5 percent next year and as much as two percent in 2019. The recession could be milder or more severe. The accelerated scenario calls for growth of around three percent next year and 3.2 percent in 2019.

Let’s look at each of these scenarios.

Breakdown: a 2018 recession

The primary case for an economic downturn in 2018 is the force of history:

The current recovery at eight years and two months (as of August 2017) now is older than all but three of the other 10 post-war recoveries. However, it also is the weakest of the other 10 recoveries in terms of average growth rate. Does slower growth mean longer growth? Perhaps, as there is a correlation between slower growth and longer growth. Also, it makes economic sense since slower growth could reduce the excessive exuberance and over-investment that can cause a downturn.
Another historical fact is that the second year after a presidential election has empirically been twice as likely to be a recession year as the other three years in the election cycle. Additionally, the second year after the election has an average variance from trend of 0.5 percentage points in terms of economic growth. However, these facts may be more coincidental than behavioral.

PIA’s assessment is that, although the chance of a recession is higher than it has been for the last few years, it still is an unlikely occurrence. On the other hand, remember the old adage to hope for the best but plan for the worst.

Breakout: accelerated growth

A strong case can be made for an economic breakout next year. The recipe for turbocharging the economy is as follows:

A healthy dose of regulatory and administrative reform conceivably could add a percentage point to growth.
Corporate tax reform with a significantly lower tax rate (15 or 20 percent), accompanied by reducing deductions and simplification, could add perhaps as much as a percentage point to growth.
Additionally, slightly more growth could be achieved with improved trade negotiations; anti-trust and competitive reform; and a return to monetary normalcy.

As indicated earlier, the first of these regulatory reforms already is happening. If meaningful corporate tax reform is enacted late this year or early next year, it is likely the economy will accelerate.

Although this scenario is scored at a 25 percent likelihood, there is a clear but political path to it happening. Also, the underlying fundamentals of the economy must cooperate as follows:

Productivity must increase after lagging during most of the current recovery.
Labor supply must demonstrate some elasticity with an increase in labor supply as compensation increases. At the current time, there are over six million job openings, so the economy needs workers to grow.
There are indications that labor mobility is declining. The number of households moving to other states has decreased even as the number of job openings has increased. A major issue appears to be the high cost of housing in areas with high labor demand compared to those with lower demand.

Continued slow but steady growth

The easiest forecast always is for more of the same. The following are key supporting factors for this view:

First, and most importantly, is the linear momentum of eight years of steady growth.
Global economic conditions are healthy but not accelerating or slowing, adding another dose of momentum.
The political environment remains messy, and any tax reform may end up too little too late or not that significant.

To sum up, the economic outlook is most likely slow but steady growth. However, there is significant chance of either a recession or an acceleration of growth.

Print markets in 2018

Print will, of course, generally track with the economy in 2018. Over the last few years, most printers that survived the Great Recession have seen their sales recover, although it has taken a few years. The typical printer that managed to survive the recession still took a severe hit in sales over the years 2008 to 2010 – a sales decline of almost $300,000. On the plus side, survivors’ sales swelled by over $500,000 in the recovery phase of the cycle.

Scenario 3 could result in accelerated growth.

On an annual percentage change basis, total sales of the average surviving printer (since many printers did not survive the recession) dropped by almost 10 percent in 2009 before stabilizing in 2010. Since the end of the recession, the average printer has experienced a single-digit positive sales increase each year.

As previously pointed out, there are six key reasons why print and printers have largely been healthy since the end of the recession:

Print has hit its sweet spot in the mature recovery phase of the economy.
Most of the severe displacement of print by digital media now is behind us.
Labels, wrappers and packaging print serves as an anchor on print sales as it generally tracks very closely with the overall economy.
Recenly, print marketing and promotion, particularly direct mail, has demonstrated its effectiveness as a premium marketing and promotional media.
Even the print sector most impacted by digital media – informational and editorial print (books, newspapers and magazines) – has been doing relatively well lately.
Printers themselves have adjusted their business models to take account of new industry trends and realities.

Although prints growth pace remains below online medi, it still attracts significantly more revenue than online media in traditional media: newspapers, magazines and books.

As of mid-year, print is growing and is in the middle-range of industries that are growing, according to the latest data from the Institute for Supply Management. The ISM Manufacturing Survey Report, covering 22 manufacturing sectors for July, shows the printing industry ranked number seven of 14 sectors reporting growth. Print also ranked number seven of 14 sectors reporting growth in production. Print’s rank was slightly higher for employment growth; it was ranked number five out of 11 sectors reporting growth.

So, how will the three 2018 economic scenarios impact print? In PIA’s view:

In the optimistic scenario, overall print shipments increase by two-plus percent next year. In terms of industry profitability, the average printer’s profit rate would likely increase by about 0.5 percent over trend to around 3.5 percent of sales.
The recession scenario would reduce total print and print-related shipments by around two to four percent next year. The typical printer’s profits would dip significantly until the recovery is underway.
The middle, most likely, scenario would result in stable or slightly growing overall print sales in 2018. In this scenario, printers’ profits remain relatively stable at three percent of sales.

Profits will trend by significantly different paths depending on the printers’economic scenarios:

In the acerbation scenario, profits would jump significantly to historic highs of 3.4 percent of sales in 2018 and 3.5 percent of sales in 2019.
If the economy falls into a recession in 2018, printers’ profits would be wiped out and turned into losses for both 2018 and 2019.
In the trend scenario, profits would remain at three percent of sales for both 2018 and 2019.

The Case for New Bindery Equipment

by Melissa Larson, contributing writer, PostPress

Muller Martini’s InfiniTrim is an example of today’s intelligent bindery equipment significantly increasing productivity and throughput.

To longtime observers of the printing industry, finishing operations sometimes were referred to as the overlooked stepchild. Shops that had successfully made the transition to digital printing still were working with post-printing set-ups that had become antiquated almost overnight.

That’s changing quickly with the swift evolution of automated bindery equipment, which has become a necessity with the increased number of shorter runs, the shortage of skilled workers and mounting labor costs.

Printers find themselves smack in the middle of many of the global trends that are driving plant floor automation. Among these are a lack of skilled labor, reductions in operating costs and rising customer demand for flexible automation together with consistent quality. Also, although it may not seem like it when you’re contemplating a million-dollar purchase, the cost barriers to automation are falling.

The BindRite Dealers Association holds an annual meeting and vendor tradeshow to showcase the latest in print bindery and finishing, specialty printing and custom presentation equipment and supplies. During the meeting, and throughout the year, the association facilitates the exchange of information regarding member activities in marketing, sales tactics, technical service management and general business management practices. Additionally, the Dealers Association assists members in product and vendor searches. It has compiled a group of BindRite-branded products, including equipment and consumables.

Green buttons

Al Boese, BindRite executive director, has closely tracked the evolution of bindery equipment over the years and has commented on a machinery trend he calls the Green Button Revolution.

“What is the Green Button Revolution? Basically, it is the next stage of automation in digital printing, and it now is beginning to affect all phases of paper handling, binding, protecting and the other print finishing processes,” said Boese. “Green Button means that worker intervention is minimized; in its most ideal form, the operator merely needs to load the machine and press a button (which most often is green).”

Using data taken from the National Print Owners Association (NPOA), Boese has established that labor costs are the single greatest category of business expense in postpress operations, overtaking overhead as the greatest drag on profits. “In fact, with overhead and cost of sales remaining relatively stable over the last 30-year period, the uptick in labor costs comes almost directly out of owner’s compensation,” he explained. According to Boese, these findings account to no small degree for a surge in sales of automated finishing equipment.

“Highly automated bindery equipment is engineered to provide optimum ROI because of its unparalleled efficiency, shorter run capabilities and built-in quality controls,” explained Werner Naegeli, president and CEO of Muller Martini North America.

“Unlike legacy machines, which were designed with gears and chains, each component in today’s digital machines is individually servo-driven. Not only does that help achieve maximum production speed, but it also optimizes each production stage, allowing for machine set-ups and adjustments that require little or no manual intervention.”

And, this type of automation is available today for both inline and offline bindery equipment. For print binderies and finishers, automation may be more important for its offline bindery equipment than for their customers’ inline possibilities.

“Not all digitally printed materials are going to be practical for binding and converting inline,” stated Boese. “Because of this, trade binderies and finishers must have current, automated equipment to service the difficult projects in a timely and cost-effective manner. Old, out-of-date bindery equipment will simply not survive.”

Time to forget the ROI?

Occasionally, the ROI number crunching must take a back seat to the long, hard process of imagining what the future will look like for a particular business. Chris Eckhart, president of Eckhart and Co., a full-service binder in Indianapolis, Indiana, and also a manufacturer of custom packaging products, recently purchased a Kolbus perfect binder. This technology represented a multimillion-dollar investment; however, the decision was driven by more than money considerations, Eckhart explained. Looking to the future of his business, he stated: “To survive and be profitable, we concluded that we needed to invest in the technology that was available in our industry.”

Crunching the numbers for such a purchase, from an ROI standpoint, made no sense. “It was impossible to justify the ROI. I thought that with the greatly increased efficiencies of the new machine, we might be able to go from two shifts to one,” said Eckhart. The Kolbus’ set-up and makeready time is orders of magnitude faster than the previous equipment and runs at much faster speeds. But at the time of the purchase, it was hard to predict whether the greater efficiencies would mean loss of work hours for Eckhart’s staff.

As it turned out, so much new business rolled in that the reduction in hours never happened. The increased quality of the new binder’s output and the enhancement to Eckhart’s reputation made for new and happier customers.

And, there were other “soft” advantages that were not so easy to quantify. “We proved to our employees that we were committed to spending that amount of money to improve the reputation of the business,” said Eckhart. “Also, they are proud to have been trained on state-of-the-art machinery.”

The use of intelligent automation in today’s bindery equipment can significantly increase productivity and throughput in other ways as well. As a case in point, a book-on-demand provider in Germany utilizes Muller Martini’s InfiniTrim three-knife trimmer, which offers the complete automation capability so essential to achieving optimum productivity when processing ultra-short runs.

When comparing the InfiniTrim’s performance to a classic three-knife trimmer, the customer noted that 795,000 format changes have been performed on the InfiniTrim in one year. If those format changes were done on a classic trimmer, it would have required over five years of makeready time.

As Boese points out, however, theres more to the equation than just the purchase price. “Buying decisions are made, or should be made, based on the availability of the local supplier or dealer to support the equipment being purchased,” he said. “Support includes installation, operator training, technical service, spare parts and just being there when the need arises. While many focus on the initial cost of a piece of equipment, it is the total cost of ownership that counts, and that includes local service and the uptime of the operation.”

Contemplating the future

A 2015 report from Smithers Pira, a consulting and market intelligence company with US headquarters in Akron, Ohio, examines the current state of the commercial printing industry around the world going forward to 2020.

One summarizing statement includes the following examination of the print industry: “A number of technological developments have improved efficiency, contributing toward declining levels of employment within the industry. Rising levels of automation are being seen in both administration and print production, and printers have sought to invest in a range of areas to shore up profitability and compete more effectively. This, too, has led to increasing consolidation within the industry.” Printers are left to wonder what part their businesses will play in that consolidation.

Naegeli is firm in his conviction that new bindery technology is a must in today’s world in order to survive and stay competitive. “Since it’s not unusual for a printer to receive 200 orders containing just 20 to 40 runs each, an effective bindery solution must be able to process these files quickly. So, without investing in automated technology, it’s almost impossible to process digital print jobs efficiently,” he said.

Naegeli went on to explain, “Most importantly, customers want the flexibility to produce innovative products and promotions that offer personalization and other variabilities (e.g., format changes, hybrid products, multiple versioning in run lengths, etc.) that increase end-user engagement and response rates. And, they are seeking printers that not only meet their demanding deadlines, but deliver a consistent, high-quality end product. For most printers and binderies to remain relevant and robust, they need singular finishing capabilities that can produce a wide range of complex printed products.”

For Eckhart, it’s a matter of practicality. “At some point, equipment just wears out,” he stated. “Then you have to make a decision about the future. For the past 10 to 15 years, companies in this industry have survived by cutting hours. It’s time to think about adopting a strategy to re-invest in the business, because those are the companies that are going to continue to survive. The alternative is to go out of business.”

Boese put it succinctly: “Time is saved because the user interface is intuitive and simple. Many standard jobs are pre-programmed, and custom work can be stored for future use. Job set-up is simple, swift and precise. Machine operation during a job run is automatic, freeing an operator to prepare the material for the next job or other multitasking activity. Likewise, material is conserved because makeready essentially is eliminated, and a perfect result usually is achieved on the first sheet or book. Green button technology is alive and flourishing, with even more potential for the future.”

Two Little Words That Can Make or Break a Customer Relationship

by Joanne Gore, director of marketing, Avanti Systems

As children, we’re taught that it’s good manners to say “thank you.” In fact, we say thank you all the time: when we’re given a gift, when a favor is done for us, when we’re provided assistance or simply when someone passes the salt. But, how often do we say thank you in business beyond the sale?

Consider these statistics:

It is six to seven times more expensive to attract a new customer than it is to retain an existing one. – ThinkJar

The probability of selling to an existing customer is 60 to 70 percent, while the probability of selling to a new prospect is five to 20 percent – invespcro.com

Existing customers are 50 percent more likely to try new products and spend 31 percent more, when compared to new customers – invespcro.com

At the end of May, I had the privilege of helping host Avanti’s 2017 User Group Conference, which took place in Denver, Colorado. It’s a tremendous opportunity for customers (both new and longstanding) to learn about new products, share ideas and network with their peers. For us, it’s a great way to say, “thank you” and further strengthen the customer relationship.

Don’t get me wrong. There’s a LOT of work that goes into planning an event of this caliber. And, while a user group conference might not seem feasible for your business, there are many other types of customer appreciation events that you can hold to say, “thank you.” They range in size and scope, depending of course on the size of your customer base. I’ve produced (and attended) all sorts of customer events, including golf tournaments, open houses, holiday parties, sporting events, celebrations, etc.

But, what if that just isn’t your thing? What other opportunities are there to say “thank you?”

Use your CRM

Your Customer Relationship Management (CRM) system is a gold mine of information. In addition to storing contact and job information, you can use it to record things like the anniversary date of the first job produced or perhaps the last. Set up alerts that remind your sales team to say thank you – whether by email, snail mail or a good old-fashioned phone call – and be on the lookout for repeat business.

Tradeshows

The number one question I get after attending a tradeshow is: how many leads did we get? While lead generation is typically a show’s primary objective, don’t lose sight of the tremendous opportunity it provides to (re)connect with your customers. Say “thank you” with a nice dinner or perhaps a private reception. We did this at Graph Expo, and it was a tremendous success.

Thank you/greeting cards (aka: snail mail)

In a digital world, receiving a handwritten thank you is no longer a common occurrence. As printers, you are at a distinct advantage over just about any other industry with access to designers, paper choices, unique finishes and more. What a great way to showcase your shops capabilities, simply by saying “thank you for your business.”

Announcements

Did you recently get some new equipment? Are you expanding your services? While press releases are a great way to get the word out to the masses, personalizing the message to your loyal customer base is sure to get the machines humming. Don’t be shy. Let them know what’s new and what’s coming. Better yet, invite them to an exclusive preview before you announce it to the public and/or post it to your website.

Loyalty/referral program

It’s common practice to offer discounts for new business. However, if you publicize special discounts to new customers only (i.e.: 10 percent off your first order), you risk alienating your existing customers. The solution? Why not say “thank you” publicly to your loyal customers by providing incentives for them as well. For example, receive 10 percent off their next order with any new referral (insert caveats, of course). Or draw inspiration from many loyalty programs – for every X amount of dollars spent, earn points/dollars towards future purchases.

Introductions

Referrals work both ways. Perhaps you have a customer who is in real estate and another who provides landscaping. Making an introduction costs little, but the value of a newly-forged, profitable relationship is not soon forgotten. Pretty soon, they’ll be saying thank you to you with even more repeat business.

Reprinted with permission from Print Media Centr

Joanne Gore is the director of marketing for Avanti, headquartered in Toronto, Canada, and a monthly contributor to Print Media Centr’s News from The Printerverse. She has nearly three decades of B2B marketing and communications experience, including corporate and small office environments.

Print Media Centr boasts a diversified bunch of print and print media enthusiasts who bring relevant and topical information and resources to the Print and Integrated Marketing Service community. Collectively, there is not much in print and integrated marketing Print Media Centr hasnt done and still is doing. Being in the trenches with its audience enables it to provide a current perspective on the industry, engaging from personal knowledge and experience. For more information, visit www.printmediacentr.com.

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