Merging businesses

The print industry is perfect for mergers and consolidation with its chronic overcapacity and endemic fragmentation. In an industry characterised by corporate failures and price competition, the pressure for consolidation has been building.

And mergers are continuing this year. In March, OCA Group acquired Melbourne offset firm Print Bound and merged it with its primarily digital subsidiary BPO Print. The month before, Rawson Graphics swooped in to salvage the business of Group Momentum after more than $250,000 of debts forced the multi award-winning Sydney digital printer into administration. .

In many ways, the numbers tell us it makes sense. Take two businesses, each turning over $3m with the same equipment, with both paying rent and running a single shift. Combined, it would be $6m business. If they reduce staff by say 25 per cent and eliminate the duplication, they could make serious money.

The problem however is that most mergers fail to deliver value. Experts have reported a historically distressing level of M&A failure, citing failure rates as high as 90 per cent.

[Reolated: More mergers and acquisitions news]

Most mergers fail because companies pay too much. They under-estimate the time and resources required for bringing two businesses together. Then there are personality issues where people from different companies don’t get on, and there is more often than not a clash of cultures. Also, employees of acquired companies often leave because they are worried about the future. So what does a printer have to do to make it work?

Finance broker Wade Oldham says printers usually make the mistake of ignoring cultural differences. The cultures, he says, are as important as the numbers. The cultural fit makes for a better strategic fit that would lead to savings and more business.

“Everyone runs businesses differently and the bloke selling has to train the buyer to ensure that the culture remains,’’ Oldham says.

“That was one of the biggest problems with Geon. They didn’t understand the culture of the businesses they were buying. They just thought if you added up all the numbers it would work. They found out quickly that’s not how it works

“If a culture at one place isn’t the same as another one, then it’s unlikely to benefit.”

“It’s not just about the numbers and economies of scale, although that’s a significant part of it. It’s also about the culture. They’ve got to have a similar thought pattern on how the customers should be treated and how it works.”

Why are so few printers keeping an eye on the culture? Part of it is because of the peculiarities of the industry. Printers are fiercely independent. They are used to running their own show so merging with another company and folding their way of operating into another entity would be, to their mind, out of the question. “You know that many printers are pig headed and ego maniacs,’’ Oldham says. “That’s half their problem. If they just opened up their thought patterns, they would realise there are other ways.”

That said, he believes there are enormous benefits when it’s done properly. “I’ve seen people in different sectors of offset merge with different sectors of offset, both having expertise and both having  customer bases but they are able to expand on both because of additional equipment and additional expertise that’s been acquired,’’ he says.

Apart from doing a due diligence on the numbers, he says printers should also do a culture audit of the company they are acquiring.

Certainly, the cultural fit is something that has to be handled with sensitivity. A number of printers looking to expand their market are doing this by buying into completely different sectors – but creating a cultural fit at the same time.

Award-winning Sydney digital printing company Carbon8 did that when it acquired laser cutting start up Bespoke in January this year for an undisclosed sum

Bespoke has been allowed to keep its brand identity and two laser cutters, allowing it to offer services like stenciling, engraving and cutting on a wide range of materials.

Carbon8 joint managing director Ken Beck says there are still some similarities between the two companies but he concedes they occupy different spaces. 

“I wouldn’t say it’s completely different but it’s definitely nothing to do with printing as such,’’ Beck says. “We see it as diversification, or lateral expansion of the business. We bought a company but we have maintained that brand but brought them into our premises to be able to utilise all of their resources internally for Carbon8

“It keeps its separation as a brand that the market is aware of. It will keep largely its spirit of personality and individuality and innovation. We have just changed their factory operation and put it into ours.”

He says Bespoke was purchased for less than $100,000 but the assets were valuable. Carbon8 bought Bespoke’s innovation.

“It’s not a massive financial acquisition, much less than many machines we have purchased,’’ he says. “We were also paying for a lot of smarts, for knowledge of how to do things.

“We didn’t buy them for their revenue per se. We bought them for their capability and that was driven out of their culture and that has far bigger value than just the client base because a lot of those might not transfer over.”

He says the acquisition has helped change the business. The decision to make acquisition had to go beyond numbers.

“On one level it’s very easy if you don’t worry what the true costs of things are and what the pitfalls could be but it was hard getting to the point of making the decision because it’s not terribly transparent what the true costs of acquiring a business is and what the true revenues are likely to come out of it. The advertised revenues and the actual revenues are two separate things in any purchase,’’ he says.

“But then, it immediately made sense because we knew it would offer added capability and speed within our business. That helped make the financial case for its purchase.

“Definitely it’s increased our potential client base. Carbon8 is far bigger than Bespoke. That gives us the opportunity to innovate in a new space.”

He says Carbon8 will keep Bespoke’s casual staff as part of the deal but the owners would move on following the negotiated handover period.

It is a similar story at Marrickville graphic design and digital printing business Imagination Graphics which acquired stationery business Amazing Paper, a business that produces wedding invitations, speciality stocks, specialty envelopes and speciality paper. Imagination picked up 500 new customers in the process.

Imagination’s owner Emmanuel Buhagiar implied the cultural fit was not that big a problem as he had been working closely together with the company. “We were working closely together for 18 months and then I made him an offer he couldn’t refuse,’’ Buhagiar says.

He would not disclose how much he bought it for but suggested it was a good deal for both. “I’ve kept that a bit of a secret. It was a special deal that I had done with the owners, a package deal.”

He says it has automatically expanded Imagination’s market. “This has brought another arm to our business and we are finding we are doing a lot more digital printing with the wedding invitation business,’’ he says.

He says Amazing Paper’s different culture has brought about changes at the way the people at Imagination go about their business. Put simply, it meant Imagination suddenly had to start dealing with customers. In that sense, it has been a smooth transition.

“One is dealing with the public and we’re normally dealing with other printers and other companies,’’ he says.

“We had to change a tack a little bit, we had to become a little bit nicer and understanding.

“People were coming in off the street so you have to help them more whereas previously we were a pre-press background, files would come in done and we would check them. The boys are learning now how to deal with customers and be more attentive to customers.”

By expanding that customer base, Buhagiar hopes it could see Imagination picking up new clients for work doing annual reports and company brochures.

And the one acquisition has given him a taste for more.

“There is something in the pipeline, “ he says. We are in negotiations to buy someone else out.”

Rocky Cassantini has built his Brisbane print and signage business Valley Edge Design through acquisition, picking up companies like Railings Print, Viper Graphics, Handy Printing Service and Doggett Street Press.

And he’s on the lookout for more.

“Bring them to me,’’ he says. “If the price is right and there is an opportunity there to make some money, I would continue to do that because I see it as a growth strategy. It always has been my growth strategy. It’s the only way to accumulate 50 to 100 new clients instantly.”

“I have pitched it to so many companies and I show them the cost savings. There are valid cost savings by merging companies together.”

He says handling the transition properly is the key to getting those economies of scale.

“Obviously the directors want to stay on because that’s their livelihood but there are opportunities to save on administrative and floor staff,’’ he says. “The reality is if we both have a million dollars’ worth of business and we both have 15 staff each we don’t need to 30 staff to run $2m worth of business. We only need really 15.

“Those savings generally come off the bottom line and we can share space, we can share machinery so there is upside for the owners of the company”

He says cultures are always different. They have to be managed properly.

“You are never going to get a commonality of culture because cultures are different wherever you go,’’ he says. “It depends on the people and if you’re going to merge two companies together then culture is something that needs to be addressed and looked at. People have different feelings about their work ethic and how they work and how they operate and whether they are happy in their job

“It’s a matter of managing that and coaching those people that want to stay. I ask them what do you really want to do with your life and if you’re not happy here, why are you here, let’s help you find another job. It’s as simple as that because there is no point having someone in your workplace who is unproductive. In the days when everyone was making money that was fine but these days we all run lean manufacturing business. We have staff who like what they sell and what they do and share the vision

“It’s something I’ve always known and had to address. It’s a matter of knowing how to manage those efficiently.”

Some companies find other ways to expand without acquisitions. Wagga Wagga commercial printer Active Print did this by setting up its own franchise Signarama right from scratch. The strategy was to take the company into wide format printing.

Active Print co-owner David Foster says the two businesses run out of the same building but have different shop fronts.

“We advertise that Active Printing has branched out into signage and opened Signarama,’’ Foster says. “For the man in the street driving by, it’s two separate businesses, but most of our clientele are aware we now do signage.”

Despite it being two separate shop fronts, he says the businesses have the same culture. After all, they are both essentially the same company.

“Both companies are customer focused,’’ he says. “Both businesses have the same aims and that is to satisfy customers and make a bit of money.”

Still, the advantage with a merger is that it brings in expertise straight away. That has not been the case for Active Printing.

“We had been doing some wide format but your challenge is in stores and product knowledge. It’s a big learning curve,’’ he says.

All up, acquisitions and mergers can work. But as some successful printers would say, they have to be carefully managed.


Keys to Successfully Completing an M&A Deal

An M&A deal could be the biggest deal of your life, knowing a few key M&A tips — whether you're merging or acquiring — increases the likelihood of successfully completing an M&A deal.

Most important is to retain capable and experienced M&A advisors. Any print business owner who represents themselves is asking for trouble. You can't complete this transaction alone, and a business owner who represents himself in a life-altering deal is asking for trouble. You need an impartial advisor, someone who has been through the process before and can guide you to successful completion. This advice is especially true if you're selling a business.

M&A is a roller coaster ride, if you get ahead of yourself you could make bad decisions. It is often the case that you never know where you stand from one day to the next, the deal is on, it’s off, it’s on again with conditions, the conditions are dropped, there are twists and turns all around. Stay calm and steady. Don’t get too emotionally involved. There will be inexplicable frustrations. Stay with the facts, be prepared to walk away

If you are instigating the merger don’t rush into the first offer. Wait for any other offers to come in. More than one offer and you are in a better position to negotiate.

It is best not to hold out for a marginally better offer. If you want to do a deal and the offer is good enough, take it. Most or part of something is better than all of nothing, which may be what you get if you wait around for the perfect deal, it could be a long wait.

Going through an M&A deal can be an intimidating process (for both the mergers and acquisitions teams), but that process thankfully follows some concrete steps that your M&A advisor shold present to you, so you know what is going to happen.


Here's the step-by-step process that nearly every M&A deal follows:

Compile a target list.

Contact the targets.

Send/receive a teaser (executive summary).

Sign a confidentiality agreement.

Send/review the confidential information memorandum (CIM).

Submit/solicit an indication of interest (IOI).

Conduct management meetings.

Ask for or submit a letter of intent (LOI).

Conduct due diligence.

Write the purchase agreement.

Close the deal.

Handle any post-closing adjustments and integration.

Comment below to have your say on this story.

If you have a news story or tip-off, get in touch at  

Sign up to the Sprinter newsletter

Leave a comment:

Your email address will not be published. All fields are required


Subscribe To Our Newsletter

Join our mailing list to receive the latest news and updates from our team.