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Build, purge or merge?

A few options to combat falling revenue amid COVID-19


February 5, 2021
By Bob Dale and Gord Griffiths

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A recent PIA study from this summer indicated that 50 to 65 per cent of commercial and signage printers had a decrease in revenue in the past 30 days, and some knowledgeable sources estimate that 30 to 40 per cent of commercial printers may close or merge in the next 12 months.

The challenge of building sales is the number one issue reported by most printers. While some segments have fared better than others, most commercial printers have experienced a serious decline in sales. One method to grow sales includes acquisition, but challenges increase with reduced access to capital and higher risks of retaining the sales from the acquired company, and the fact that many owners are at a stage of life where they do not want to risk hard earned capital with retirement on the horizon.

Organic growth (Build)

There have been many articles and blogs written on how to build sales organically with many common messages – communicate, differentiate, prospect, diversify and avoid discounting!

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The reality is much more complex and difficult. Pre-COVID-19, many companies needed to secure 10 to 20 per cent new sales every year just to remain even, due to issues like not repeating some print projects annually, decreasing quantities and customer churn in today’s market.

Compound this with a recent study by Gartner Inc. of marketing budgets and spending in North America and Europe that indicated that 44 per cent of chief marketing officers will cut budgets in 2020. The transition to ecommerce has accelerated to the extent that McKinsey recently reported that the transition to online channels has experienced 10 years of growth in three months! Remaining marketing spend will continue to shift to digital and shorter runs, especially with the quickly changing messaging due to current uncertainties.

With the onset of COVID-19, many companies were able to quickly adjust their variable costs (labour, consumables, etc.), delay investments and access government support. However, the new reality is that there are fewer print opportunities available, and often the work that replaces work lost is at a lower margin. Printers will need to take decisive action. Here are a few options that you can consider.

Contraction (Purge)

If you have already cut variable costs, now may be the time to reduce fixed costs, which may be far more difficult. Some full-time staff positions can be replaced with part time or contractors. Extra space can be sublet or disposed of, like warehousing or that space you had available for the new press that was put on hold. Sell underutilized equipment and outsource to a trade service when the need arises.

Sell the business (Purge)

It is better to sell an operating business than deal with forced closure. A business is like the stock market; is the value going up or down? Can you improve the short-term financial picture with minimal investment? Engaging a third party that sees your business from a different perspective would give an unbiased review of your present value.

Close the business (Purge)

If you own the building, the decision may be easier, as you will likely have access to the funds necessary to avoid personal liability. Few owners who can afford to pay off suppliers and employee severance will choose this option. They would want to capitalize on their investment, which may include unrealized value with their customer base.

Combine businesses (Merge)

The old expression “two heads may be better than one” can also apply to mergers. A company with $10 million in sales may have similar overheads as a company with $20 million! Mergers can spread the fixed costs over greater sales, however the integration will be the key challenge. Many mergers do not achieve the planned benefits because the process is complex and may not be managed well.

Find strategic partners (Merge)

Competitors may not be the enemy and consideration of going to market together could be advantageous if there is an increased product offering to a larger prospect or customer base. Is there a successful print broker or customer who may want to invest in your business in exchange for some equity? Consider increasing some of your product offering with a strategic partner who has a non-competitive product offering. A commercial or digital printer can offer labels from a specialist, especially with digital storefront channels.

Outsource the business (Purge)

In the past, some printers may have increased success by consolidating business offerings under one roof. With current market conditions, expansion may be too risky, so it may be more appropriate to outsource production aspects instead of investing in new equipment.

Change direction (Build)

Many printers believe the fastest way to grow is through acquisition, however another approach is to capitalize and improve your sales effectiveness through education, technology and management support.

Reflect on your current situation and consider these suggestions. The key message is to focus on work that has a sustainable margin.

 

Bob Dale and Gord Griffiths are partners in Connecting for Results Inc. Their focus is to facilitate mergers and acquisitions that maximize results for all parties, and provide recruitment and consulting services. Both Bob and Gord have many years of experience, with Gord holding positions as the president of Quebecor Canada, and COO of Cenveo. Bob has over 15 years experience offering management consulting services, transition execution and support. Over the past 14 years, he was employed by RBC
 as a specialist to lead national and international efforts for effective print management. They can be contacted at info@connectingforresults.com or visit
https://connectingforresults.com.

 

This article was originally published in the October 2020 issue of PrintAction.