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Mergers & Acquisitions (CONT’D FROM PAGE 38)
on their side. Interest rates on money to finance acquisi- tions remain historically low. The private equity (PE) capital that has funded so many print and packaging transactions in recent years is still there, and PE investors are still look- ing for places in the industry to put it to work. As organic growth remains as challenging as ever to achieve: an in- centive to buyers to grow by acquisition, and an encour- agement to sellers to position themselves to be acquired. Tried-And-True Tactics Pandemic or no pandemic, the way to do that is to con- tinue to manage the business in the same way that has always kept it strong and successful. Clean up the balance sheet and retire debt. Operate in as lean a manner as possible, including resisting the impulse to refill positions previously eliminated in headcount reductions. If there is an opportunity to pick up accounts from a struggling com- petitor, seize it. Above all, build value by doing whatever it takes to keep customers sticky — convinced there is no advan- tage for them in abandoning their current provider for a competitor. Make it as easy as possible for them to place, track, and repeat orders through a customer-facing dig- ital storefront: a prerequisite, in our opinion, to retaining customer loyalty in a business climate that can only grow more competitive. Recovery will occur, but when it does, it will not neces- sarily be easy to recognize. The strength of the rebound will vary, and probably widely, according to industry seg-
proaches to deal making. We are seeing this on the part of buyers who must take sellers’ COVID-impacted perfor- mance into account, but who also want their offers to be attractive, fair, and reasonable. In this spirit, some buyers are willing to acquire based on 2020 numbers and then wait to see if performance in 2021 rebounds to what it was in 2019. If this happens, the buyer adjusts the purchase price accordingly and sends the seller a “second pay- check” to make up the difference. In this way, both parties share the risk and the reward of an uncertain situation. If the numbers do not recover, the seller will still have re- ceived a price the market deemed acceptable at the time the deal was closed. It might be thought that with pressures mounting on many sellers and potential sellers, we have entered a buyer’s market like the one that followed the recession of 2007-2009. Interestingly, this has not turned out to be the case, at least not so far. We expected to see more businesses in distress than we did after relief funds from the Paycheck Protection Program (PPP) ran out over the summer, and we are happy to admit we were mistaken. As mentioned, EBITDA for some sellers has come down from pre-pandemic levels, but not as sharply as we have seen it fall because of other kinds of economic shock. Nevertheless, the market is full of opportunities for ac- tive buyers, who continue to have several favorable trends
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December 21, 2020
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