Board Converting News, May 4, 2020

How COVID-19 Is Affecting M&A In The Printing & Packaging Industries BY JIM RUSSELL & TOM WILLIAMS Eight weeks ago, most of us had never heard the terms COVID-19 or Coronavirus, yet as we sit today this tragic

sign that buyers will still be there when sellers are ready to reengage. One result that is nearly a certainty to come from this situation is an uptick in tuck-ins. Companies that struggle to successfully navigate through the COVID-19 crisis will be looking toward a cashless merger or outright sale of their book of business to survive. Both new strategic buy- ers who have not done tuck-ins before and experienced buyers who have completed several tuck-ins since they became commonplace 8-9 years ago will be active in that market. From a seller’s perspective, when done right, even a company that is struggling financially can see a signifi- cant return on the sale of their equipment, their book of business and their working capital when they team up with the right buyer. When this pandemic begins to subside and a favor- able economic climate returns, we expect to see a return to strong M&A trends in our industries. The private equi- ty money that has been sitting on the sidelines through the COVID-19 crisis is not going elsewhere. These buy- ers, along with the strategic buyers within the industry, will allow M&A activity in the Printing & Packaging world to remain active and strong, especially for companies that remain profitable through this COVID-19 interruption. These firms will continue to trade at EBITDA multiples.

virus has impacted every aspect of our work and personal life and will likely continue to affect our activities for the foreseeable future. When we return to “normal” or what the new normal might be remains uncertain for nearly everyone. Many people have asked us what we have been somewhat quiet on the topic. Most company owners have been rightfully focused on car- ing for their employees, reorganizing their business to function in a world of social distancing, applying for PPP loans and other government pro- grams to assist them financially in

Jim Russell

impact this will have on Mergers & Acquisitions in the Printing & Packaging Industry and for the last 4-5 weeks

Tom Williams

getting through the current challenges, and unfortunately, downsizing their staff to adjust to reduced workloads. What that new workload volume is will be different for every firm. We have customers whose business has re- mained relatively stable or in fact, grown. Those compa- nies are mostly in the packaging and/or food & beverage label segment or commercial printers that are servicing insurance and health care clients. On the opposite end of the spectrum are general commercial printers who are re- porting today that their volume is 25-30 percent of what it was a year ago. How will all these changes affect M&A going forward? First, there are still many M&A transactions in process that are being completed with good, solid companies at attractive multiples of EBITDA. Most transactions that were in progress when COVID-19 first surfaced continue to move forward toward fruition. The progress may have slowed down, or additional due diligence is being com- pleted, but transactions in the Printing & Packaging Indus- try continue to be consummated. We have no less than four EBITDA based transactions in progress that are mov- ing forward toward a timely closing. For some of the sell-side engagements that were initi- ated in mid-March, the sellers have hit the “pause” button. Like most firms, they have had to focus on critical chang- es in their business before they resume activities related to the sale process. However, we fully expect that these transactions will begin moving forward again in the next 30-60 days. In one case, we have two buyers who had already looked at a business and they are anxious to keep the process moving, even though the seller has decided to temporarily put things on hold. This is an encouraging

We won’t know for a while if the multiples being paid for strong companies remain comparable to what they were pre-COVID-19, or if there will be a slight decline in the his- torical multiples. Challenging times like we are experiencing now often result in companies becoming leaner and more efficient in order to survive. We fully expect that will be the case for the Printing & Packaging Industries and believe that there will be many unique opportunities for both buyers and sell- ers to realize their objectives in the months to come. New Direction Partners, LLC is an investment banking and financial advisory firm that serves the printing, packaging and related industries. To learn more, visit www.newdirec- or contact Tom Williams at twilliams@ or Jim Russell at jrussell@new-


May 4, 2020

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