DeWese--Something to Say About M&A

This is column number 154. One five four! They don't call me old Rhetoric Breath for nothin'. It also marks my 14th anniversary writing for Printing Impressions.

By the time you read this column, a whole bunch of people, including yours truly, will be in Chicago at GRAPH EXPO. I'm being inducted into the Soderstrom Society during GRAPH EXPO, and, if I'm not mistaken, you will have to start calling me "Sir Mañana Man" or maybe it's "Lord Mañana Man." The Soderstrom Society is kind of like being knighted or something, I think.

There's lots of news as I write this. By the time you read it, I'm betting a lot of it will have blown over. For example, the Dow Jones Industrial average has lost about 1,600 points. Now there's some news. I'm betting that by the time GRAPH EXPO rolls around, the Dow will be moving up again and will have regained about 800 points.

More news. Didya hear that the president of these United States has done something awful and has fessed up to it on national TV? I'm predicting that by the time GRAPH EXPO rolls around, the president will announce he is born again and will become the chancellor of Jerry Falwell University when he leaves office.

Meanwhile, I've got a feelin' that Sammy Sosa and Mark McGwire will announce that they are going to run for president and vice president. I'll sure be voting for them.

When Sammy and Mark are elected, however, they won't have to worry about the financial crises in the Soviet Union, Japan or all those other Asian Rim and South American countries. I'm betting that Oprah Winfrey and Jerry Seinfeld are going to lend them all enough to erase all their red ink. I'll bet that Oprah and Jerry ask me to join them in the deal when they hear that I got inducted into the Soderstrom Society.

Our industry has its own news, but it never makes the national wire. By the time you read this, more than 130 printing companies will have been acquired so far this year. That is about 30 more companies than all of 1997, and there are two months remaining in 1998. It means about $2.5 billion in sales will have changed hands the first 10 months of 1998. That's big news in the printing industry.

If you are a printing salesperson, you hear the merger and acquisition news. You hear all of the rumors as well. The rumors, incidentally, are passed along primarily by paper salespeople.

For example, if you are a printing salesperson in Baltimore, you have already heard that about five local companies doing at least $20 million have been sold this year. The same kind of news is true for many other cities.

Ask the Mañana Man
Knowing that I spend most of my time representing sellers in the printing industry, a lot of print salespeople have called me and said, "Oh mighty Mañana Man, what does all this merger and acquisition mess mean to me?" Or, "Oh all-knowing-and-seeing Mañana Man, why is this merger stuff happening to our great industry?"

I've been the investment banker to 19 selling companies so far this year, so I'll attempt to answer some of the questions that may be rattling around your heads.

The first question you ask: "Do the big consolidator companies cut sales commissions and expense accounts when they buy a company?"

The answer, so far, is, "Rarely to never." The last people the consolidators want to de-motivate are the salespeople. But don't get too comfortable. Sooner or later, as more and more companies are acquired, the financial people at the consolidator companies are going to question how much they are spending for sales compensation.

So my advice is to work harder at growing your sales and especially hard at improving the profit margins on your work. If you're in a city where most of the companies have been acquired, like Baltimore, there just may not be an independent Generosity Litho where you can move your work.

Next question. "Do the big consolidators put in a lot of red tape sales rules that make it harder to sell?"

The answer is, "Rarely to never." The big companies depend on local management to keep running the company as before.

But then you say, "Well, I've heard that they raise prices, and our prices were already too high."

You've heard wrong. In fact, most of the consolidator companies have national buying contracts and programs for buying paper, ink, plates, film, equipment and employee benefits. These cost savings are very significant, and it enables the acquired company to be even more competitive and certainly more profitable.

Now you snicker and say, "Oh, I get it. They cut our benefits, right?" Wrong again, you knucklehead. Most of the consolidators have benefits programs that are equal to or superior to what you already have in place.

So you ask, "What is causing this? It must be bad. A lot of plants are being closed and lot of folks must be losing their jobs."

Hiring, Not Firing
No! No! No! You've done gone to whinin' on me. I only know of a one plant being closed from among the 130 deals so far this year. For the most part, the buyer companies intend to expand the plants and hire more people as the companies grow.

The consolidator companies are generally publicly traded and have very deep pockets for new equipment, people and overall expansion. One of them, Consolidated Graphics, even has 95 young people in a management training program.

Consolidated Graphics wants to make sure it has plenty of well-trained supervisors and managers to accommodate all the growth it expects to gain from salespeople. I'm sure that some of the other consolidators have similar management training programs or will be installing them shortly.

You ask, "What is causing all of this consolidation in the printing industry?"

You've finally asked a good question. Certain printing industry segments are highly fragmented. This means there are a multitude of competitors in the segment. There is an immutable economic force that eventually causes fragmented industries to consolidate. It has happened or is happening in many other industries, ranging from funeral homes to waste management companies to limousine companies.

Finally, you say, "Well there most be something really bad about all this consolidation."

Well, yeah. There is something really bad about it if you are a slug or a slacker or a company complainer.

Frequently, independent, family-owned companies are indulgent and put up with a lot of nonsense. These big public companies have little tolerance for ne'er-do-wells. So, on that note, all you slugs and slackers better put this magazine down and get out there real fast and start selling something!

—Harris DeWese

About the Author
Harris DeWese is the author of "Now Get Out There and Sell Something!" published by Nonpareil Books. DeWese is a principal at Compass Capital Partners Ltd. DeWese specializes in investment banking, mergers and acquisitions, sales, marketing, planning and management services to printing companies. He is one of the authors of the annual Compass Report, the definitive source of information regarding printing industry merger and acquisition activity.