This past May, I attended the AWA Mergers and Acquisitions Executive Forum in Chicago. The forum is usually packed with great insights from investment banks, strategic buyers, and private equity firms. The big takeaway? Wall Street loves label companies.
Why all the love? Is it because of skyrocketing, double-digit growth returns and IPOs that reach interplanetary heights? Sorry, you won’t find any of that in the pressure sensitive materials industry. No, Wall Street loves this cozy little vertical because it’s about as reliable as it gets. One of the most compelling revelations was how closely aligned to the GDP the label industry is, year in and year out. Investors love that kind of predictability.
Here are some of the other big takeaways:
● Steady, solid growth. According to AWA’s Jackie Marolda, the label industry will enjoy solid global growth of 2-4% in labeling (including labels and shrink sleeve), specialty pressure-sensitive tapes, and graphic arts. Naturally, there will be hot areas of growth, such as Asia and South America. Some sectors of the market, especially heat-shrink sleeves, will enjoy growth over 6 percent.
● Multiples are up. Everyone’s ears perked up at the news delivered by Jim Hill, executive chairman with Benesch. He reported that multiples are reaching 9.0x across the industry. That’s good news. The great news is that if you put together a solid management team, are active in a profitable niche, and have a solid vision for growth, those multiples should easily push into the double-digit range.
● Overhang ready to roll. Why are multiples so high? Beyond an ever-improving economy, much of the effect can be tied to the overhang, which is the equity held by investors that’s sitting on the sideline.
Hill reported investors are sitting on over $400 billion dollars, and are looking to spend it on companies that meet the criteria I just mentioned.
With multiples up and overhang plentiful, why aren’t more deals happening? I believe the answer is a qualitative one, not quantitative. Sure, all the planets are aligned and anyone who is ready to sell should be selling. But why aren’t they? One of the biggest reasons is that many owners are baby boomers, and they’re not ready to part with their babies just yet. Lacking a solid vision for their own retirement, they are clinging to their companies, in many cases until death do them part. Sadly, this only hurts the company and the owners. Industry consolidation means that the big companies will only get bigger, and some of the smaller companies that are below $100 million in annual revenue will lose out to those who pursue a merger or are acquired by a bigger fish.
Yes, Wall Street loves the label industry. But it’s up to the label industry owner to make sure that love isn’t squandered – especially when the time is right to sell, sell, sell.
Rock LaManna helps printing owners and CEOs use their company financials to prioritize and choose the proper strategic path. He is President and CEO of the LaManna Alliance, and provides guidance on how to grow a printing business, merge with a synergistic partner, make a strategic acquisition, or create a succession plan. Rock can be reached by email at Rock@RockLaManna.com.