Friday, April 19, 2019

EFI Goes Shopping

This week’s announcement about the sale of graphics communication trade vendor EFI raised eyebrows across the printing industry landscape. Owners may have noted the fine print referring to a “Go Shop” provision, thinking, “I could never sell my business that way.” Privately-owned companies typically traffic through an “undisclosed” stealth M&A sale process, managed by experts such as my partners at Graphic Arts Advisors, LLC.

The primary exception requiring infrequent application of an announced M&A sale process for privately-owned companies stems from bankruptcy cases. The “stalking horse” provisions in bankruptcy stand as the distressed M&A sister to “Go Shop” provision used in the context of public companies such as EFI. From my vantage point as an M&A Advisor, I caution owners to not avoid the obvious buyers out of concern for secrecy. The visible need for a succession plan offers legitimacy for carefully managed exploratory talks that fall short of full-blown “disclosed” sale process.

For more on bankruptcy and M&A transactions in the printing industry, check out the latest edition of The Target Report.

Monday, April 1, 2019

Hard Shut Downs - Not So "WOW" for Stakeholders

WOW Air's immediate shutdown on March 28th illustrates the pain inflicted on customers with an "abrupt ending" of business operations rather than "gradual winding down of assets and liabilities.” The company's extreme financial distress underscored the need for creative options to avoid the checkmate scenario when new financing failed to materialize. The WOW Air case involving “forced liquidation” is a stark reminder for business owners in troubled situations that “orderly liquidation” tends to achieve fairer outcomes for all stakeholders including the bank, customers, employees, and trade creditors.

Customer Relationships - Corporate Asset?

Ownership of customer relationships is one of the most challenging issues in financial restructuring and distressed M&A for a service business. The inherent tension between maximizing the value of corporate intangible assets and individuals monetizing their personal goodwill is magnified under the microscope of a critical pending transaction. It’s common for the corporate debtor to seek value for these assets while the key people (who may or may not be owners) may run for the exits or put a toe in the water to be swept away to a competitor.

The company’s lenders and creditors have a voice in this debate when a company is insolvent, generally seeking to realize the value of all corporate assets, including if possible, monetizing the intangible assets. It’s logical because if the customer relationships belong to the corporate debtor, they are subject to bank liens and creditor claims. If the customer relationships are an asset that is untethered to the corporate entity, they are capable of walking out the door freely.

Rapid fire negotiating decisions require well-reasoned tactical judgment from the M&A advisor to navigate the mine field of issues related to retention of customer assets.

Friday, March 8, 2019

Caution Speed Bumps Ahead

Current economic news suggests that “healthy” companies should be on the alert for acquisition opportunities to gain new customers. This also serves as caution to struggling companies that the time to map out a transition from ownership may be nearing.

The intersection of long-term changing fundamentals within some segments of the graphic communications industries and short-term economic erosion of revenues and profits is where the next shake-out will take place. The only questions are “when” and “how” to navigate the climate to maximize gain or minimize loss.

Experience from the carnage of 2008, 2002, and 1990 suggests that the fork in the road between “healthy” and “unhealthy” will widen in the next downturn, as leading companies will again grow by gaining market share via distressed M&A and the treading-water companies will transition from ownership via sale of “book of business” and customer assets, non-bankruptcy managed liquidation, and orderly wind-down of assets and liabilities.

Friday, February 22, 2019

First Quarter Decisions

With the strong economy seemingly back on track, there have been fewer new distressed M&A opportunities in the printing and graphic communications industries. Historically, the first quarter has been a peak time because family business owners of companies that are financially “treading water” come back from holidays with spousal/sibling support for “doing something.” As the year-end financial reports are wrapped up, and with family encouragement fresh in mind, owners of challenged companies evaluate strategic options such as putting the business up for sale, or finally accepting the lunch date from the competitor down the street. 

Not sure if the current quiet environment for acquiring challenged competitors is an aberration from long term trend, or the lull before the storm if the economy begins to wobble.

Friday, February 8, 2019

Treading Water

Companies in the printing and graphics communications industry that are “treading water” should take note that the most difficult/critical question directly correlated to success or failure of transition from ownership is WHEN to pull the trigger. More than 50 percent of clients emerging from distressed M&A and orderly wind-down cases over the past 25 years acknowledge “waiting too long.”

Friday, February 1, 2019

Use Caution with Alternative "Instant" Lenders

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Advice to business owners of struggling companies in the printing and graphic communications industry: start now to wean off loans tied directly to your business checking account. The daily cash grind inherent to distressed businesses will be more lethal. These loans now have strings-attached, but in bad times, the strings will feel more like rope for the unprepared. The likes of Kabbage, On Deck, and a myriad of other alternative lenders did not exist in the last economic downturn. They will pose an existential threat when the next credit crunch arrives, as the very nature of the debtor-creditor relationship is altered by the prevalence of daily or weekly payment and auto-debit tied to these loans.