A Guide to Selling a Business at the End Stage

Everything has a life cycle, and every life cycle has an end stage. It’s true for printing companies that, for whatever reason, have reached a point where continuing in business under current ownership is no longer feasible or desirable. Owners who find themselves in this situation should remember that the end stage of the life cycle is still something they can manage to their benefit as their time with the business winds down.

What brings printing companies to this juncture? Sometimes it’s due to the fact that they are part of an industry segment in overall decline. Although some general commercial printing companies are thriving, many others are fading from view as this segment of the industry continues to consolidate. Consolidation in mature industries is a natural and beneficial process, but it inevitably leads to a smaller playing field with fewer players.

Firms also come to the end stage for individual reasons. When the principals of family-owned businesses have no one to succeed them as retirement nears, hard decisions have to be made about what comes next for the organization. Another case might be that the owners cannot afford, or aren’t willing, to go through another round of capital expenditure for new equipment needed to keep the business competitive. Or a decline in sales and profits can’t be stemmed, threatening the financial stability of the business.

The Right Fork in the Road

Two options are available at this stage. Despite setbacks, it may still be possible to sell the business as a going concern. If that isn’t realistic, a sale in the form of a tuck-in probably will be the route to take. By examining the state of the business and determining the kind of appeal it is likely to have for buyers, a qualified M&A advisor can guide the owner to the right choice.

If the business can be sold as a going concern, preparing it for sale is done in pretty much the same way as bringing a healthy firm in a growing segment to market. Clean up the balance sheet and the income statement. Reduce costs and retire debt. Review the client list for customer concentration and unproductive accounts. Look objectively at head count. Try to do all of these things from the perspective of a buyer.

When sale as a going concern is not possible, the focus shifts to selling assets that have value. For some businesses, the most valuable asset is the real estate that the company owns and occupies. Prepare the building for sale by making sure that it will be broom clean at the time of ownership transfer, with trash and debris cleared out and all personal property removed. If safety or environmental issues exist anywhere in the property, now is the time to remediate them.

Production equipment that the buyer does not intend to acquire can be liquidated for cash. An equipment appraisal prior to sale will help to set the right expectation for what the equipment will bring in the used and export markets.

Bestselling ‘Book’

The asset that drives most tuck-in transactions is the account list. Buyers of companies that have reached their limit of organic growth always find productive account lists attractive. So do buyers who are looking to gain customers in territories other than the ones they already serve.

Upon acquiring a book of business in a tuck-in, the buyer will assign salespeople and CSRs to individual accounts and, if necessary, add equipment to ensure that orders from the accounts will be properly produced and delivered. This guarantees continuity of service to the seller’s loyal customers.

Selling an account list as an asset is different from selling real estate and equipment in that most often, there will be little or no cash for the seller up front. The payment comes in the form of a royalty on retained sales — repeat business from the seller’s customers after the tuck-in transaction is complete — over a specified period of time. Obviously, the terms of payment on a contingency basis should be thoroughly understood and approved by both the seller and the buyer before the transaction closes.

Go-to-Market Valuation

The need for this kind of guidance is another example of why it’s essential for selling owners — most of whom will never have sold a business before — to work with an experienced M&A advisor once the decision to sell has been made. The advisement will begin with a valuation of the business: an inventory of how much it is worth and an estimate of how much buyers will be prepared to pay for it. Equipped with that information, the advisor can match the seller with the company’s best prospective new owners.

The sale of a company either as a going concern or as a tuck-in takes time. In general, plan on six to nine months between putting the business on the market and closing the deal. With the right help, sellers can use the end stage of the life cycle to reap the rewards they’ve earned and now are in a good position to collect.