Mark Hahn
Editor’s Note: Mark Hahn is founder and managing director of Graphic Arts Advisors, a boutique strategic financial advisory and consulting firm focused on the printing and related graphic communications industries. He will be a featured speaker at the 2019 APDSP Convention in Dallas on October 26. At the convention, Hahn will present his “14 Keys that Drive Value” in a graphics business, but in this interview, he spoke with APDSP Managing Director Ed Avis about the overall market for selling a graphics business.
Ed Avis: What is the market overall like these days if somebody is interested in selling a graphics related business?
Mark Hahn: I would characterize the market as reasonably robust. There is a lot of activity at this time and many buyers are very interested in completing an acquisition. Many buyers have strong balance sheets and they are thinking about what's next. They'd like to do something soon, because they are doing well and want to grow while the economy is still positive.
Avis: That seems to contradict the idea that “print is dying.” How do you reconcile that?
Hahn: Well, it's very important to think about what segment of print you're in. Are you in wide format, which is still experiencing some growth? That’s a good place to be right now. Are you a commercial printer that is just a job shop and waiting around for that next order to come in? That's not a great place to be. If you're a wide format shop, are you doing installations? Have you figured out grand format? Have you specialized by serving a vertical market so that there's value there beyond just the ink-on-substrate part of the that business? Where your company is positioned in terms of the segment is very important as to what drives the value of a business. Whether it’s declining or growing is also very important.
Avis: Touching on large format specifically for the AEC community, do you find that businesses that have expanded their services beyond printing, to include digital document management, data management, those kinds of things, does that improve the value of the firm?
Hahn: I think clearly managing data for clients is a value-add, provides stickiness and is very important in the business. No question about it.
Avis: A lot of reprographics businesses haven’t fully recovered from the recession. Do buyers look at the good years before the recession compared to now and say, “Wow, you’re in decline…we’re not interested in a buying you”?
Hahn: Fortunately, the recession is far enough in the past now that those years are not included in a typical look-back period. We really focus on the previous 12 months because that's what buyers want to know. Not what happened three years ago. They are asking “I'm buying the future; where is this company going in the next few years?” So, we're really past the point in time where we need to include information from the recession or before. It's just ancient history at this point.
Avis: When a company approaches you about being sold, do you usually find that their financials and other documents are in pretty good shape, or do you need to do a lot of work to get them ready for a sale?
Hahn: It really depends on the client and it aligns pretty closely with the corporate culture. If the corporate culture is somewhat of a seat-of-the-pants culture where decisions are made quickly and in response to the immediate situation, very often in those cases we see that the books are not very neat and clean and there are things that we have to dig into. If the company is more buttoned down, and they've got good procedures in place, we tend to see better financial statements.
I can remember one instance in which a company’s accounts receivable detail report didn't match their accounts receivable summary report, which makes no sense. They couldn't explain it, and that inconsistency introduced an element of distrust, because if your records aren't correct, now we (and prospective buyers) need to dig really deep into that difference to find out what the story is.
Avis: Tell me a little more about culture. What role does culture play in a sale and what constitutes a company's culture?
Hahn: Well, it's an interesting question. Very often when we're bringing buyers and sellers together, the first thing they think about is the price. They want to know how much am I going to pay for this? Then the second thing they typically dig into is what does this company do? How does it align with the products that we make? Is there a fit? And then the third thing they look at is the culture of the company, the people. Are they buttoned down or are they loosey-goosey? Do they do things by the seat of their pants? Are they people who show up early? Are they people who take a lot of time off? Many buyers put these cultural differences in last place when they are thinking about a prospective acquisition target.
However, it's my opinion that if you fast forward four or five years down the road, the culture actually makes more of a difference in terms of the success of these organizations coming together. In the long run, a few dollars one way or the other in the selling price is not going to make a difference if everybody's gelled as team and are pulling in the same direction.
A good example of cultural misfit might be a difference in selling style. Suppose you have a sales department that is really big on entertainment and that type of selling, and in that organization the salesmen don't really do the detail work. They're out with customers and prospects, entertaining and building relationships. I'm not saying that's wrong, but if the buyer has a culture where the sales reps do lots of detailed background work, fill out all the forms correctly, and spend a fair amount of time in the office attending to details, then that can be a mismatch that leads to friction.
Avis: What's the typical timeline for a sale?
Hahn: Typical timeline is six to nine months. However, with that said, we've completed some transactions as quickly as three months. Sometimes buyers will come to us and they already have identified which company they want to buy, or sellers will come to us and they already know who they want to sell to; however, they don't know how to run the process or they just need guidance. They need an objective graphics industry-specific third-party expert to help them through the process, and we'll do that. Sometimes that can be as short as two months, because in those situations we don't have to conduct the search process to find the other party.
On the other side of it, for various reasons, we've had deals that have closed after three years of work. I can think of one transaction in which we represented the seller where the buyer hired an attorney, who I'll call “Uncle Charlie,” who was literally the next-door neighbor's brother. We knew we were in trouble when that attorney said he could not work on the contract that day because he was in municipal court. The buyer hired the absolute wrong attorney, who ending up costing everybody about eight months of time struggling with documents that were poorly constructed. That's the outlier, two or three years.
Want to learn more? Be sure to attend Mark Hahn’s session at the APDSP 2019 Convention in Dallas on October 25. Click here for more information.