Alliance Archive

Merging to Survive!

Written by Colin Thompson

When we get through the present recession (yes, there is still a recession), many printers will be in a stronger position than when they entered it. The question is who will they be, and what are they doing now that puts themselves in that position?

My guess is that right now they have a low debt to equity ratio, they have made and are implementing action plans based on the economic realities, and are adopting strategies that are aimed at making them stronger.

Four types of printers
Based on what I see in the market today, 2015 will see for following four groups of printing businesses.

Group 1   The 10% where the proprietor makes a market wage and the business achieves a 10% or greater net profit.

Group 2   The 50%, where the proprietor will just make a market wage and the business achieves less than 10% net profit.

Group 3   The 25% where the proprietor will make little or no wage, perhaps tipping equity, and the business will achieve breakeven profit.

Group 4   The 15% that will be liquidated or simply close their doors, perhaps after the proprietor has tipped in additional equity.

You may argue the percentages, but I think the groups are accurate enough for most readers to guess which group they may be in upon reflecting on their 2015 calendar year performance

The issue/problem I see now is that many within groups 2-4 are adopting a wait and see approach. They are digging in, trading on, making the best of it. No real action plans, with the market realities either not seen or not acknowledged.

For those I suggest they need to start looking a lot closer at their business, the market, and the customers they serve. And then ask themselves, or perhaps some trusted advisors, is their business capable of getting you at least to a Group 2 business? What needs to happen now to increase the chances of making it happen? And if they cannot see they can get to group 2, what is their motive for staying on in the same business structure?
The merger / alliance option
One of the facts of the Printing industry is that it is capital intensive and generally has a fairly low equipment utilisation rate, underutilised facilities and often inefficiently used labour. So doesn’t it make sense for many printers, especially in these tough economic times, to consider pooling some of their equipment, labour and facilities resources?

Does it not make sense, for at least Groups 2-4, to at least consider ways to get through this together, and perhaps entertain the thought of developing business models that will not only survive, but have a very good chance of becoming a member of Group 1? Note, Group 1 printers are not necessarily high turnover printers, they are spread throughout most categories of printers.

Below is very simplistic example of what could be achieved in a merger:

                     Printer A        Printer B        Merged entity
                    Group 2 or 3       Group 3            Group 1
Turnover             £1,500,000       £2,500,000        £4,000,000
Owner's Wage         £80,000          £25,000           £160,000
Staff                8                15                20
Staff wages          £320,000         £600,000         £800,000

Turnover per head    £187,500     £166,666   £200,000 Continue reading

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