Buying a label company is an important decision. Many acquisitions do not generate the expected profit. To make sure you are getting a good deal and not a bad bargain, follow these steps.
1. Find out the real reason for selling
Buyers want to preempt hidden issues or trouble ahead. Is the company for sale due to health issues, retirement, change of life, family disputes, need for investments, loss of customers, etc ? It is critical to understand the real reason.
2. What are you buying
What machinery and equipment is included, get a list of assets, liabilities and contracts, does the seller own the premises and are they included or not ? What is the net asset value ? Is the seller offering the total limited/incorporated company or does he accept an asset sale, so unexpected liabilities do not transfer ? Who owns the company and is 100% of it for sale ?
3. Find out what is it worth to you
Cashflow is a key parameter in determining value. It is critical to ‘normalize’ the cashflow to compensate for extraordinary and nonrecurrent items. A key question to understand is whether the owner and his family take a salary and how much. Make sure the books are prepared by a certified accountant and that you get one with experience in M&A on your team.
There is always the risk that some customers will leave especially if they get special treatment by the current owner. How big a share do the largest customer(s) generate ? Will they stay once the owner is gone ? A risk analyses will typically include a scenario, where 20% of the business is lost within the first year.
A label company may have a market value, but factors such as location, markets, synergy, what types of labels (blanks, rolls or sheets, simple or high-end print, special constructions) will have a major impact on the value for a strategic buyer. Whether he will share part of that with the seller is up for negociation.
4. The human factor
Companies are run by people, so it is important to evaluate whether the people will stay, whether there is someone who can manage the company locally and what kind of agreements are in place.
5. Financing
Some buyers expect the seller to help financing the deal with payment over some years. Sellers will want to know if the buyer has the cash or financing in place to buy their company.
6. Look under the hood
Once negociations are done, a letter of intent is normally signed followed by due diligence. This is the period for the buyer to confirm that everything is as outlined by the seller. Some buyers use it to continue negociations, but the best deals are made when it is used to check facts.
7. Final contract, payment and integration
Once the final contract is signed and payments made, the integration process, which eventually will make or break the value of the deal, can start.
1. Find out the real reason for selling
Buyers want to preempt hidden issues or trouble ahead. Is the company for sale due to health issues, retirement, change of life, family disputes, need for investments, loss of customers, etc ? It is critical to understand the real reason.
2. What are you buying
What machinery and equipment is included, get a list of assets, liabilities and contracts, does the seller own the premises and are they included or not ? What is the net asset value ? Is the seller offering the total limited/incorporated company or does he accept an asset sale, so unexpected liabilities do not transfer ? Who owns the company and is 100% of it for sale ?
3. Find out what is it worth to you
Cashflow is a key parameter in determining value. It is critical to ‘normalize’ the cashflow to compensate for extraordinary and nonrecurrent items. A key question to understand is whether the owner and his family take a salary and how much. Make sure the books are prepared by a certified accountant and that you get one with experience in M&A on your team.
There is always the risk that some customers will leave especially if they get special treatment by the current owner. How big a share do the largest customer(s) generate ? Will they stay once the owner is gone ? A risk analyses will typically include a scenario, where 20% of the business is lost within the first year.
A label company may have a market value, but factors such as location, markets, synergy, what types of labels (blanks, rolls or sheets, simple or high-end print, special constructions) will have a major impact on the value for a strategic buyer. Whether he will share part of that with the seller is up for negociation.
4. The human factor
Companies are run by people, so it is important to evaluate whether the people will stay, whether there is someone who can manage the company locally and what kind of agreements are in place.
5. Financing
Some buyers expect the seller to help financing the deal with payment over some years. Sellers will want to know if the buyer has the cash or financing in place to buy their company.
6. Look under the hood
Once negociations are done, a letter of intent is normally signed followed by due diligence. This is the period for the buyer to confirm that everything is as outlined by the seller. Some buyers use it to continue negociations, but the best deals are made when it is used to check facts.
7. Final contract, payment and integration
Once the final contract is signed and payments made, the integration process, which eventually will make or break the value of the deal, can start.
