Features Profiles
The Facilitator

The full Q&A article with Jay Mandarino can be found in PrintAction January 2015

It is hard to argue against stating Jay Mandarino, President and Founder of the C.J. Group of Companies, is the most-visible personality in Canada’s printing industry. By being so engaged in the community, particularly in the hypercompetitive environment of Toronto, he is as much a sounding board for insight as a lightning rod for criticism.

Mandarino, however, is the consummate entrepreneur on which the Canadian printing industry was built. He embodies the strategy and ambition needed to move through some of printing’s darkest days… Today’s printing environment also provides opportunity for the wise entrepreneur and Mandarino’s C.J. Group has made three acquisitions over the past six months. This includes the November purchase of Prime Imaging and its interesting Océ LightJet photographic presses that produce an apparent 4,000-dpi resolution. Artwords, a unique logistics operation with large-format and short-run printing capabilities was acquired in June 2014 and, in December, Mandarino was wrapping up the purchase of another nearby operation called TPS, which went into bankruptcy on December 3. TPS is a screen-printing company with two massive Italian Sais presses, running 70 x 120-inch sheets, as well as a 120-inch guillotine, 56.5 x 96-inch die cutter, and 60 x 70-inch mounter.

With these three recent acquisitions, C.J. Group, which Mandarino started out of his parent’s basement in 1980, becomes a $30 million operation and one of Toronto’s largest independent printing operations. In February 2015, the C.J. Group will be putting the final touches on its new 80,000-square-foot facility located on the perimeter of Toronto’s downtown core. As a result, C.J. Group will be comprised of close to 160,000 square feet in total.

“When I finish all of this, I want to be the largest independent full-service shop in the country, so we are going to have to head towards $100 million,” says Mandarino. “It is becoming a goal. I wanted to get out, but now I am doing the opposite. I am committed.”

In addition to his company’s 18 acquisitions over the past decade, Mandarino explains he has also served as an intermediary, as an M&A facilitator, for at least 25 proposals between two third-party printing companies trying to reach a purchase agreement. In early December, PrintAction magazine sat down with Mandarino to discuss the state of mergers and acquisitions in Canadian printing.

PrintAction: What is today’s biggest challenge facing printing companies?
Jay Mandarino: They need more sales to grow. One way to get more sales is by hiring a good salesperson. There are a lot of order-takers out there and the really good salespeople are either becoming brokers, getting out of the business, or they are staying where they are because they have a job that is guaranteed. There is so much risk and uncertainty with so many companies closing. The only other way to grow is how we have and that is really from acquisitions.

How difficult are sales-driven M&As when salespeople might own the clients?
As a business owner, you do want to make sure that you are involved with those clients so that you have part of that ownership as well. If you leave it just to the sales reps, the danger is that when that sales rep leaves most likely all of their work is going with them. We try to tie people into our company with different systems and stuff so it would be harder for them to leave. We also make sure to take care of the sales reps, make sure they get what they need – make sure they are happy.

Why is there now so much focus on providing lead generation to keep salespeople happy?
I must get an email a day from someone who can provide us with lead generation. I was at a course a few years ago. It was a test for salespeople: How do you communicate with your customer? And everybody in the room was saying, “Well, I email them, twitter them, talk to them on Linkedin.” They gave every possible avenue of communicating without actually sitting in front of the customer and meeting with them, developing that relationship. Really it is all about the relationship that you have with your client, working as a team. Our staff are key to our success and growth; and honesty I am blessed to have the best of the best.

When you buy a company is book of business always more important than equipment?
The equipment is generally the last thing we are looking at. I’m sure some companies when they are doing this are probably looking at some equipment. There are always one or two pieces of equipment of interest. But generally you are looking at accounts. You are looking to see if they have any RFPs. Do they have any standing contracts with people, because those are generally grandfathered over when you take over a company. It is pretty hard to get into [new customers] these days.

How do you overcome the hesitation to share proprietary information about accounts?
It is always a challenge. If you had asked me a few years ago, I would have said try to do it on your own but I believe now that you need somebody, that intermediary, who is almost like a marriage councilor. You need someone to get the buyer and seller on the same page about what is realistic, what is unrealistic, and to do it without offending anybody.

As the buyer, I can really jeopardize that relationship or get the other party angry, which is not what I want to do. You can have a company that has been around for several generations in a family but the kids don’t want to take it over. Now all of a sudden, you are not just looking at a company, you are looking at family history, especially in printing. The first step is to sign a NDA to protect both parties and, of course, you do an Letter of Intent to agree on the basic facts and stipulate that you need to know what the accounts are and, more importantly, who is in control of those accounts.

Why is it so important to understand who is in control of the accounts?
We looked at one company that had some really fantastic accounts, but they were 90 percent tied into the owner. In most of the cases we have been involved with, maybe about half, the owners generally do not stay on. They either want to retire or just want to stay there for one or two years. It is a big risk if they leave and now suddenly there is no relationship with you. It is very easy for someone else to get in the door.

When purchasing a business, how do you determine what to pay up front?
You really cannot pay all of the money up front because there is just too much risk. If you pay all of this money up front and you give them exactly what they want, all of a sudden 30 days go by and all of the sales might go somewhere else. You have no guarantee those sales are going to stay with you.

We will generally pay over a couple of years and we will put an escalator in there. If the sales drop, they get less. If the sales go up, they get more. It has to be beneficial to both parties and sometimes people have a hard time with this. And fair enough to their point, too, what happens if we do a bad job managing their accounts? Why should they suffer?

Generally, in our successful acquisitions, we try to keep the Presidents on as a member of our management team, but try to take away all of the day-to-day work they had to do and just have them focus on sales and client development – do what they do best. Most people started with sales as they developed their companies and then took on all of these other roles that they really do not want to do. Nobody wants to collect bills. Nobody wants to deal with human resources.

How do you effectively tie salespeople to a business purchase?
You make your deal with the owner first, but also subject to making a deal with the sales reps. Smart owners will help make it happen because it is to his or her benefit. You can also do an asset purchase, where you are just buying equipment and buying accounts, which means there are no liabilities with it – sometimes that is the cleanest.

No one is working to capacity, so good salespeople are in demand and can get paid a premium for that. They are pretty hard to find and much more of an asset to their current company than they realize.

Most of these recent deals have all been tied into the sales reps. I am working on one right now with another company, not for us, but as a facilitator, and there are X number of salespeople all over $1 million. If they were to not come with the deal, the company wouldn’t be worth anything. So the owners, between the two of them, are trying to come up with a compromise. To get the salespeople to sign, I suggested they are going to have to give them a signing bonus and that they should split the cost.

Can you become too focused on the salespeople when buying a company?
As soon as you bring the salespeople into this it gets really complicated. The deal really has to be pretty well 99.9 percent done, subject to then tying in the salespeople. You really have to work together to get those people in because they might be nervous and think, “I am going to go be a broker.” Of course, I think it is now much harder being a broker going forward.

Why is it harder being a broker today?
There are so many of them out there, but there are also so many clients that are weary of it and really want one-stop shopping, with everybody cutting back. They want somebody to deal with and know that they are going to be there tomorrow.

What has really changed can be seen in the RFPs: 10 years ago, 10 percent of the questions would be finance and 90 percent reproduction and pricing. Now it is around 60 percent finance. They are assuming that you are the same price, that you can provide the quality and that you can deliver. They want to make sure you own your assets and how much debt you have if they are going to partner with you.

Are most people today looking at asset or share purchases?
The seller wants to sell shares, but there have been too many issues lately with liabilities and challenges, bankruptcies, especially in our industry. People are shying away from share purchases.

How can you avoid unseen problems with Canadian Revenue Agency?
Even if they are up to date with their CRA filing, you cannot find out if they are going to be audited and they can go back five or seven years, so there could be a lawsuit. You can make the owners personally responsible for X amount of years after, but no lawyer wants their client to sign that.

What are some of the key factors to consider when you are trying to sell your printing business?
You have to separate your real estate from the printing business. You can always sell real estate but you cannot always sell printing equipment. Other things people can do to add value to their company is to consider if you have any trade rights or intellectual property – having all of that documented, registered. You really have to set it up ahead of time to make sure that you are prepared, to know what your assets are, because the printing equipment itself, honestly, in most cases is worth nothing.

Are most printers prepared to sell their business?
Most people never think about setting their company up to be sold, because it is just the last thing they think about. Succession is a huge challenge and people do not think about it. I have been in 16 countries in the last three or four years and everywhere it is the same thing. It is not just a North American problem. You are so busy with your day-to-day business and trying to survive and remain profitable. You really do have to think of a succession plan and there is no sooner time to do it than now. Start it now. Meet with your accountant.