PPB November 2018

Mergers & Acquisitions | FEATURE “For any of the big suppliers, the easiest way to grow now is to acquire another supplier,” said Pierre Martichoux, founder and president of Gilroy, California-based supplier Chameleon Like, which acquired The PlatformGallery Group in August. Not only can buying a new book of business be the most straightforward option, it also can have the biggest perceived impact. By buying another company and adding their sales to your own, a parent organization can showmassive year-over-year growth to investors and lenders. Aside from the business and financial considerations, suppliers and distributors may have personal motivations for selling. “If you’re a business owner who was a salesperson and then opened a company, you may think you could make more money if you didn’t have the overhead,” says Larry Cohen, CAS, president of New York- based Axis Promotions, which purchased Campus Stop this year. “The idea of selling out and focusing on what you do well and what made you a success while letting someone else worry about the back end, can look really appealing.” What Makes Companies Attractive For Acquisition Whether you want less responsibility, more stability or are looking to cash in your chips, selling your promotional products business may be the right option for you. Before that can happen, it is important to position your company optimally for the sale, and that requires knowing what buyers want to see in their potential investments. “When we are evaluating a company for acquisition, we look at several factors, all of which need to be present for us to go forward,” Simon says. “We look at the strength of the management team and the culture they have created. We look at the industries in which their customers are engaged and the company’s ability to maintain and grow revenue. We look at the cost structure. We consider whether we can add value to the business and to its customers.” While all buyers will place importance on different aspects, the book of business, three-year sales and company culture are all of primary importance when positioning your company for purchase. Beyond that, the needs of any acquirer can be more specific, but they often fall into a few specific categories. Timing is also a major factor in any acquisition. It can take years to develop the necessary trust between both parties before everyone feels comfortable closing a deal, and in that time, it’s vital that the seller maintains their performance. “We would suggest owners spend a few years positioning their company for sale,” says Jon Levine, president of The Image Group in Holland, Ohio. “Many wait until their sales have trended down before deciding to sell. We, along with most acquirers, are looking for upside.” To learn how to prepare a company for sale, it’s best to ask someone who has been in that situation. MitchMounger, president of Sunrise Identity in Bellevue, Washington, was intimately involved in his company’s decision to sell to HALOBranded Solutions and says one of themost important factors is the client. “Maintain an intense focus on client satisfaction,” he says. “Satisfied clients create value.” Happy clients start with happy sales reps. Any potential merger needs to Private Equity And Promotional Products If mergers and acquisitions are a hot-button issue in the industry, then the influx of outside money from private equity firms is the nuclear football. Since the recession, private equity groups have sought out fragmented markets as their next source of steady income, and the promotional products world has fallen into their sights. “There are smart operators who realize that they can make a lot of money by vacuuming up as much revenue as possible, stripping out spare parts, cobbling it all together for institutional buyers and flipping it quickly for a big profit,” Koosed says. For these firms, suppliers and distributors are not long-term investments, but more like real estate to be flipped: They can streamline the operation, add a fresh coat of paint and sell it for a profit within five years. “The downside of that approach comes in the integration—there’s a significant diminishment in customer and employee experience,” Koosed adds. Not all private equity groups are interested in short-term gains, and some major industry players are already affiliated with equity groups, including HALO Branded Solutions, which was acquired by TPG Growth in May. For some, the benefits of aligning with an equity group—financing, business consulting and a larger presence—may be just the answer. But even if an equity group can give you everything you want, Koosed, Cohen and Martichoux advise thinking about what that deal could mean for the future of your business. “The peril that I see in the private equity approach is that private equity firms generally don’t invest enough in the customer value proposition and employee experience,” Koosed says. “They focus on growing the number and amount of transactions. With this transactional approach they’re positioning themselves to compete against Amazon and Walmart. I wouldn’t bet against Amazon in that fight.” | NOVEMBER 2018 | 65