In March, I attended the AWA Mergers and Acquisitions Executive Forum in Chicago. Even if you don’t consider yourself a candidate for an M&A, the forum did produce some very interesting news for the Label & Narrow Web sector:
1. Converting is consistent. The converting industry has proven to be extremely resilient to the economic downturn, and it has plenty of investment banks and even traditional commercial printers interested.
Growth is particularly hot in niche sectors, such as the graphic arts market, and specialty tapes, where growth rates were projected to be in double-digits.
2. Global is great, but regional powers prevail. The converting industry is extremely fragmented. Only 4% of production is traded outside the region in which it is converted. That means regional converters can be extremely valuable.
3. Commercial printers are eyeing label companies. The solid, and sometimes spectacular growth in the converting industry, particularly labels, has caught the eyes of commercial printers. Sensing much of their industry is either flat or in decline, they’re looking to diversify, and many are inquiring about label companies.
4. Big dogs are hunting in new territory. A growth option overlooked by many smaller companies is the merger and acquisition, in which you can rapidly improve your resources and territory, and achieve tremendous economies of scale.
Why has this long been ignored? Primarily because M&As have long been the domain of bigger, $100 million+ companies. But those days are over. The big deals have dried up, and now investment banks, private equity firms, and strategic buyers are looking at smaller, highly-profitable companies.
5. Wall Street has a problem understanding Main Street. In one of the more interesting developments, I found there was a real disconnect between the big investment firms and smaller businesses finding common ground for an M&A deal.
I think it’s similar to what we’ve seen in our world at large, where the big money players are only focused on the bottom line, and not bothering to understand how an operation really works, and who are the people behind it.
What this means is that Wall Street needs help assessing Main Street, and Main Street needs to get its financials and operational metrics in order to communicate with Wall Street.
I’ll leave you with one final thought. As part of their financing deals, private equity firms typically have to move investments in their portfolio within five years. Investment banks also have deadlines, in which they need to spend money or it will lose its “capital” designation.
In other words, there is a lot of money floating around out there, with investors who are getting very eager to use it. The time has never been better for a niched, profitable label and narrow web company to consider all its strategic options.