. iven that the print industry has seen higher-than-usual rates of M&A activity over the last two years – and that trend is set to continue as a means of minimising the impact of sustained tough trading conditions – should printers be worried by this?

Paul Holohan, a partner at Richmond Capital Partners, believes the print industry has less to fear from the drying-up of private equity “than almost any other industry in the UK. The big boom in private lending in the print industry was in the 1980s,” he says. “Through the 1990s and into the new millennium, the industry became progressively less attractive to private lenders.”

Holohan says this is partly an image problem – the industry just isn’t sexy – and partly a problem of industry conditions, “because the rate of return for lenders is much less than they can get in other industries. If you look at the PrintWeek Top 500, you see that the performance of even the top companies doesn’t come close to other industries.”

Graham Barber at KBC Business Capital agrees: “The print industry has experienced the challenges of falling profits, overcapacity, rising technology costs and cheap competition from China and Eastern Europe. It’s no wonder there’s little appetite from PE investors. The payback for them has simply been
too long and too unpredictable compared with other sectors.”

Printers that do manage to attract PE funds are unusual, it seems: they possess intellectual property or they deal in facilities management. Digital printers with a niche of some kind are more easily able to attract PE funds than most.  

But regular commercial printers are now rapidly turning away from PE funds towards a different form of funding, says Barber, namely asset-based lending (ABL).

“Asset-based lending is a means of raising big amounts of capital for purposes such as buyouts or corporate purchases, based on refinancing assets like machinery or your property.”

Print is an attractive market for ABLs, he says, “due to the asset base of companies within the sector, among other factors. ABLs thrive on change, particularly if the change is caused by economic and financial turbulence, both of which look set to be with us for the foreseeable future.”  

However, the warning that Paul Holohan has for printers moving away from PE funds towards ABL is to ‘mind the gap’: “The companies that have the most to lose by switching to ABL are those successful businesses that are looking to sell.” The problem, he says, is that ABLs typically raise between 50 and 75% of the value of the asset, and that means the true value of the target company will be difficult to fund by ABL. “It’s a question of the relative size of the purchaser to the target, and the correlation between the asset base of the buyer and the profits of the purchased company,” he says.

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ASSET-BASED LENDING: THE THREE TYPES
• Debtor finance aims to raise money against invoices issued, most often through confidential invoice discounting. This can raise the highest proportion of cash to asset, although as a printer’s current invoice value is rarely more than 50% of its turnover, this is unlikely to raise the bulk of acquisition finance
• Asset refinance is a means of valuing your press and post-press machinery (pre-press is rarely counted as it depreciates so quickly) and raising money against them. The drawback with this type of asset-based lending is that the machines must have no debt or finance deals marked against them
• The final type of asset-based lending is to raise a commercial mortgage on your freehold property. This is perhaps the most popular way of generating ready cash for a purchase; it usually yields about 75% of the value of the freehold