Commercial Print Businesses - Buying Tips

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Posted on December 30, 2008 by Peter Siegel, MBA

Commercial Print Businesses - Buying Tips

Commercial printing has long been part of the foundation of American industry, and now, like many businesses, is undergoing rapid change in response to both the revolutionary technologies, and to the dramatic workflow innovations that are demanded by the new tools.

DISTINCT FROM QUICK PRINT

Unlike the quick print business which uses photocopy machines and electronic printers for short print runs, the "commercial" segment of the industry relies on offset presses--usually much larger and more costly than copiers--and produces large quantities of documents, often employing six or eight colors of ink, from huge stacks or rolls of paper. It's these firms that are paid to manufacture magazines, catalogues and promotional material in quantities of many thousands, even millions.

And while most employees of a quick print enterprise can learn to operate the equipment in a day or two, professional press operators in commercial print establishments bring extensive training and years of experience to their jobs.

FULL SERVICE, DIGITAL CAPABILITIES ARE CRUCIAL

The prospective buyer for a commercial print company--whether he or she is knowledgeable about the work and the industry, or is someone prepared for a sharp learning curve--should look for a company able to provide customers with the full range of services. Consolidation and increased competition in the industry make it difficult for a company to attract customers and maintain their loyalty unless it is equipped with the personnel and the hardware needed to handle projects from the idea stage to the end product. Sometimes that means assembling printed materials along with other items into packaging that also is produced in house, and then shipping or mailing versions of the completed project to the client's millions of subscribers or current and prospective customers.

Increasingly, the trend is for print clients to seek one-stop shopping. The printing company that has a limited future in this industry, is one that only produces printed material but cannot "partner" with clients when the material is created, and is unable to offer complete finishing functions--coating, bindery services, and assembly--as well as distribution. Also in danger of failure or losing substantial business, is the company that relies on any single customer for more than 10% of its business, or one that lacks an active customer base representing a number of different industries.

And unless the buyer is a "turnaround" expert looking for a great deal, and prepared to add cash for needed upgrades, he or she should avoid printing companies that haven’t kept pace with technology. Major investments are required by any commercial printer that hasn't fully converted to digital tools at the front end--for capabilities like producing the printing plates. Also lagging behind competitors--and in need of new equipment and training in order to survive--is the printer not equipped with the database management systems essential to drive the addressing and distribution functions at the very end of the process

PRICING TIPS

Considering the substantial investment in equipment needed to function as a commercial printer, actual value of these assets plays a big role in determining value for smaller firms--those generating $1 million or less in annual revenues--and yields valuation benefits for companies making the best use of their infrastructure by producing several millions in gross income every year. Accordingly, the $1 million or under producer is typically worth about 1.5 to 2.0 times the seller's annual earnings (before interest, taxes, depreciation and amortization) plus fair market value of the equipment.

A buyer reviewing a company generating income in the $1 million to $2.5 million annual gross range can expect an asking price that uses calculations based on financial performance, not hardware appraisals. The price is calculated by using yearly EBITDA multiplied by 2.5 to 3.5. The company with newer equipment, a great lease and a purchase plan that includes seller financing, is typically valued at the top of the 2.5 to 3.5 scale.

One cautionary note is the reminder for prospective buyers that most commercial printing companies are experiencing limited growth. Reasons include the increasing use of the Internet as a communication medium, and the growing competition from huge printing outfits in Asia that are capturing domestic print jobs--jobs that are not deadline-sensitive--with very aggressive pricing.