The wait-and-see approach to making deals—a factor of the pandemic and dealers not wanting to base selling prices off of a trailing 12-month period—is as obvious as it is frustrating. The earnouts option has helped a number of deals get to the finish line, but some sellers don’t like the idea of tying compensation into future performance.
Fear not, gentle readers. We can hear the Tom Petty refrains about “the waiting is the hardest part,” but as business activity continues to kick back into high gear, sales volumes should enable negotiating parties to more easily pinpoint a number. But are we still talking the same EBITDA multiples that were realized before March 2020 rolled around? And what are the seller’s expectations?
“Timing will become very important as we all assess the health of both the economy and the print industry,” notes Jennifer Johnson, executive vice president of acquisitions and integration at Marco. “Some sellers are holding tight to historical values while buyers are trying to anticipate the future based on industry trends. There is money available to put deals together at the right price.”
With many potential sellers believing the first quarter of 2021 is more indicative of their company’s true, current performance level, Dan Ruhl believes a greater influx of deals will transpire in the second half of 2021. Ruhl, a partner with Oval Partner, the private equity engine behind Flex Technology Group, feels while overall performances will continue to rise, activity is close enough to normal for sellers and suitors to feel comfortable.
“The transactions are going to have to be more highly structured, where there’s going to be some credit given for some of the negative outcomes during COVID,” he said. “They might have to be some catchup periods, but businesses have sort of stabilized and are coming back as opposed to where we were in the middle of 2020, when it was really tough to gauge the performance of a business.”
Pricing Game
John Lowery, president and CEO of Applied Imaging, has encountered sellers who sought a multiple higher than he was willing to pay, which is part of the negotiating gamesmanship. It’s not surprising that a dealership would see itself as being worth more than the numbers indicate.
Motivated seller or not, it has to work for both parties. And Lowery has been involved in enough transactions to know when it might be time to walk away…but he’s always willing to listen.
“We don’t want to steal the company,” he said. “We want (the seller) to walk away and feel really good about it. If they don’t want to do it, and if they think they can hang in there and do better by staying in business for themselves, that’s totally fine. We’re not a venture capital company. We’re going to take care of these companies and their employees. We’re going to take care of their clients. And were going to pay a really fair price, and not pay a premium.”
One executive who sees the pricing market as fairly balanced is Jim Sheffield, CEO of UBEO Business Services. He believes most buyers are willing to pay roughly the same price; in fact, he says many of his own company’s deals have been competitive.
For Sheffield, culture and not price is the optimum dealer maker or breaker. “It’s really about what culture they believe in, what team they want to join,” he said. “These owners love their employees, so even if some of them are going to leave right away or a year after the deal is done, they still very much care about who their employees are going to work for.”
