Some of the adverts placed in PrintWeek’s For Sale & Wanted section wouldn’t look out of place in a lonely-hearts column. Take this recent example: ‘£1m turnover printer seeks to join with similar-sized firm to form a stronger and more profitable business’. Earnest appeals for business partners are becoming increasingly regular in the back pages of this magazine as companies explore ever more creative ways to fuel growth.
One company hoping to forge an alliance is West Yorkshire-based Raiseprint. According to managing director Steve Bell, the B2 firm wants to link up with other printers or print brokers to maximise space at its Keighley site.
“We’re trying to increase the turnover of our business, and the only way I can see that happening is by merging,” explains Bell. “Margins are tight and customers are generally not interested in moving from the suppliers they’ve [already] got.”
Bell says that the responses received so far have been positive. “We’re talking to a couple of groups at the moment, trying to work out whether they’re the sort of people we could work with,” he adds.
Merger and acquisition (M&A) activity is at a record level. From gaining access to a wider customer base, to reducing overheads, there are a number of reasons why a merger may seem appealing. In such an overcrowded sector, uniting with another firm may not only be a way to maintain a competitive advantage – it could actually be a route to staying afloat.
Mergers or acquisitions?
By definition, a merger is when one business integrates with another and the combined business comes under shared-control. Sometimes acquisitions are called mergers, often to preserve the image of the company being taken over, while in other cases, the distinction between a merger and an acquisition is blurred, as stakeholders from either of the companies involved may give up ownership following the deal.
Andrew Stoneman, managing partner at insolvency and corporate restructuring specialist Menzies Corporate Restructuring, says a merger doesn’t really apply when one party is significantly bigger than the other. “If you’re going to merge a £3m print company with one that turns over £30m, it’s more an acquisition than a merger,” he says. “Likewise, there’s no point in merging a company that is loss-making against one that has a 20% profit margin.”
Mergers tend to be an attractive option where two parties of equal size and financial strength aim to join forces. “There will be an economic justification for the merger and typically that will be the most important factor in whether the merger will be a success,” explains Phillip McCreanor, director at private equity firm Livingstone Guarantee.
That justification can take many forms. The firms may have complementary technologies, customer bases, geographical spreads, or both parties may simply be keen to build scale and take out costs.
Close Print Finance area manager David Bunker believes that the primary motivation of a merger is to take the best parts out of both businesses to make money. “Merging helps the problem of overcapacity in that it’s really bringing two businesses together and streamlining them,” says Bunker. “There’s a big opportunity for companies in the print industry to talk to each other and discuss how to take advantage of scale to become a more profitable company.”
One such example is Hertfordshire-based Duncan Print and Packaging (DPP). It is looking to acquire a local business and consolidate the operations into its existing site, as managing director Michael Stewart explains: “Like many other printers, we are trying to maximize use of our equipment by operating 24 hours a day. We need to increase revenues to cover our overheads and deliver some profit for re-investment.”
Even if DPP finds a potential suitor, a large amount of planning still needs to be done before a merger can go through. Before entering into business with someone it’s important to know that they share your vision for the future. “Are they going to dedicate full-time to the business? If they have other commitments, they need to disclose them,” says Stoneman. “You may already have built up a relationship with these people but you still have to go through every aspect of how the business is going to be run in fine detail.”
Stoneman suggests that making a shareholder agreement will clarify how the new business is to be managed. “If the merger subsequently fails to work, then at least you can end it on the terms of the shareholder agreement and not have to go to court over it,” he says.
A corporate solicitor and accountant will help you with the due diligence while focusing on the potential liabilities. “Apart from the legal considerations of a merger, there are different tax consequences, depending on whether the deal is a share sale or an asset sale,” says Bunker. “These need to be considered in the planning stages.”
There is also the issue of combining separate workforces. In some cases, the companies may have completely different working practices, for example one workforce may be used to working shifts, while the other has always been a nine-to-five operation. Equally, one group might be union members, while the other isn’t.
The Information and Consultation of Employees (ICE) Regulations may require you to inform and consult employees on certain aspects of the merger. This currently concerns firms with more than 150 employees, but from 6 April, it will apply to firms with more than 100 staff. Again, an adviser should be able to guide you as to who needs to know what.
Personnel problems
Marcus Clifford, managing director for M&A consultancy BPIF McInnes Corporate, says cultural differences between workforces are one of the main reasons behind merger failure. “In many ways, sorting the finances is the easy part, while, on the other hand, personnel issues are easily overlooked. Not everyone will see the merger as a great move, and their opinions will need to be handled carefully.”
Clifford says BPIF McInnes Corporate has a specific insight into the print industry. “We understand that in this sector, most mergers are driven by the need to survive, which means you really do have to get it right as you only get one go at it.”
This sentiment is echoed by most corporate advisers, many of whom have dedicated print teams for precisely this reason. Mergers are clearly not without their risks, but if they are well planned and aided with good financial and legal advice, they can be an ideal way to grow your business and boost profits.
If you’re really clever, the supplier or end customer may not even realise a merger has taken place. “We don’t intend to change our company name and we wouldn’t expect the other firm to do so either,” explains Raiseprint’s Bell. “We might have a separate company that handles all the cash but as far as everybody else is aware, we are two different entities.”
CASE STUDY: BCQ
In January, Buckingham Colour managing director Richard Knowles and Tyrone Spence, managing director of Colour Quest, merged their businesses to form one of the largest B2 operations in the UK.
The new firm, Buckingham Colour Quest (BCQ) was the result of a long-standing relationship between the two, who are now joint managing directors. “I knew Richard well, and I think that’s a prerequisite as in certain ways it’s like a marriage. You don’t get together and commit everything with someone who you don’t know.”
Colour Quest’s site in Hemel Hempstead was severely damaged following the Buncefield fuel depot fire in December 2005, so the move to Buckingham’s site 35 miles away was a logical step. “We’ve tried to be as fair as possible to our staff by paying their travel expenses,” says Spence. “The premises here are special and the direction of the company is now solid – I think that adds to the staff’s general well-being.”
Although the merger is still in its infancy, Spence is very optimistic that it’s on the right track. “In many ways, it was the best thing that could happen as everything has gone smoothly. You do have to put a lot
of energy into it, but it has been well planned, well rehearsed and well implemented.”
Spence adds: “In terms of the actual integration of hardware, software, culture and ethos, our plan has been to take the ‘best of breed’ and put them together. As a result our clients are seeing a more professional, larger and slicker company where the economies of scale are much more enhanced.”
