NDP: Best Time To Sell (CONT’D FROM PAGE 34)
in January. These firms are planning on returning to the market after the current qualification period ends. Meanwhile, the availability of cheap and plentiful mon- ey for financing acquisitions is supporting solid multiples – some of the best we’ve in the last 10 years. Proposed increases in capital gains rates are driving many sellers to close their deals before year-end. As strategic buyers who were reluctant to perform due diligence during COVID get back into action, we foresee a return to robust activity. Another positive sign is the flexibility that some buyers are showing in the way they structure deals with COVID- impacted sellers. In cases where the seller has recovered quickly, the buyer may be willing to remove the two or three months of poor results and plug in the same number of months from the pre-COVID year, so that there’s no pen- alty to the calculation of selling price. (We call this EBIT- DAC: Earnings Before Interest, Taxation, Depreciation, Amortization and Coronavirus.) In the same spirit of accommodation, some buyers will acquire on the basis of 2020 numbers and then wait to see if performance in 2021 rebounds to what it was in 2019. If this happens, the seller gets an earnout – in effect, a second paycheck – to make up the difference between the initial selling price and the adjusted one. Hope In Distress We wish we could say that every printing business is looking at good options like these; but the sad fact is that
performing acquisition targets they believe they can make even more profitable; or that they can add to a platform of similar companies previously acquired. The highflyers in this group are the private equity (PE) firms: boutique inves- tors with access to capital from high-net-worth individuals and other well-funded sources. Since COVID, we’ve been seeing some hesitancy on the part of strategic buyers, who are concentrating on get- ting their own houses in order as they try to determine what the recovery will look like and how the lending en- vironment might change. But many of these buyers have excess capacity to fill, and they know that they can’t post- pone acquiring new accounts indefinitely. The financial buyers, meanwhile, have a lot of money that they don’t want to keep sitting on the sidelines. We think that these trends will converge at some point this year in a renewed surge of M&A activity. Sellers Still Want To Sell It’s important to remember that many firms have not been negatively impacted by COVID. In fact, many pack- agers and commercial printers have seen their sales and profits grow in the past year. These COVID winners are busy, and they’re enjoying great valuations right now. Many of the COVID wounded were bolstered by forgivable loans from Small Business Administration’s Paycheck Protection Program (PPP), which received a second round of funding
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