M&A Update and Logic for New Deals

presented by

Bob Cronin The Open Approach

March 3, 2009

Industry Outlook: The Good, the Bad, & the Ugly

Introduction
Bob Cronin The Open Approach

Presidents Conference Presentation

March 3, 2009

Industry Outlook: The Good, the Bad, & the Ugly

Assessing the New Landscape

A Look Back Sizing Up 2006 through 2008 (The Good Old Days) A Look Ahead Whats Next for Print Companies? Issues Challenges Opportunities!

Presidents Conference Presentation

March 3, 2009

Industry Outlook: The Good, the Bad, & the Ugly

The Good Old Days

2006 M&A activity/returns outstanding; print company valuations up; thriving general economy, housing market 2007 Strong M&A drive continues, print company valuations at record high; majors make significant plays; small to mid-size companies find exceptional opps in buying/selling

Presidents Conference Presentation

March 3, 2009

Industry Outlook: The Good, the Bad, & the Ugly

The Unexpected (and Uninvited)

2008 Strong start terrible finish Lehman Brothers tumbles Merrill Lynch falls AIG tanks Housing market collapses Drastic M&A slowdown as financing for deals becomes more elusive than Bigfoot

Presidents Conference Presentation

March 3, 2009

Industry Outlook: The Good, the Bad, & the Ugly

Looking Forward
First half of 2009 Weak start for M&A Majority of deals for distressed properties and fire sales (Note: Sound merger matchup can be key to survival) Sharp drop in valuations making it tough to sell fine properties; owners having hard time letting go at drastically reduced multiples since just 12 months ago Banks get brutal Deal terms at mercy of the few that can self-finance

Presidents Conference Presentation

March 3, 2009

Industry Outlook: The Good, the Bad, & the Ugly

Still Looking Forward

Second half of 2009 Gradual M&A recovery Government financing to free up Will NOT improve selling multiples Will NOT ease lender terms Will start seeing more deals happen Strong properties will sell Turkeys will still be turkeys Either way, good representation is more important than ever.

Presidents Conference Presentation

March 3, 2009

Industry Outlook: The Good, the Bad, & the Ugly

Real Reasons for M&A Slowdown

(cant blame it all on the housing market, though it didnt help)

Reduced financing availability Higher interest rates on transactions (Example) Restricted banking covenants Increased scrutiny toward manufacturing as a whole Slowdown in your clients markets affecting you (bright spots few and far between) Forecasts uncertain; PIA Most Likely Outlook anticipating -2 to -3% growth for print in general

Presidents Conference Presentation

March 3, 2009

Industry Outlook: The Good, the Bad, & the Ugly

M&A Barometer: Trading Multiples of Major Publics

Publics offer gauge for activity/performance Traditionally, public companies trade at 2X higher than private enterprises With new economy, publics are at all-time low (Note to private companies: You do the math) Extremely difficult to find scope, scale for accretive acquisitions; only value generated in fire sales Shift from shareholder value to survival

Presidents Conference Presentation

March 3, 2009

Industry Outlook: The Good, the Bad, & the Ugly

And the Private Companies?

Valuations at all-time lows Owners/management still believe their companies should be valued by standards of yesteryear Values grew fast and fierce; not likely for print companies to ever achieve those levels again (Yes, go ahead and boo) Banks have overvalued print equipment on current loans; if need to liquidate, loan amount will not be recouped Tougher than ever to secure buy, build, or growth capital; banks already in tough spot, need protection on investments; print in general not viewed as high value
Presidents Conference Presentation March 3, 2009 10

Industry Outlook: The Good, the Bad, & the Ugly

Which Brings Us to

M&A Issues, Challenges & Opportunities

Issues: Cash Flow Well-diversified, cash-positive businesses in the drivers seat If you have cash on hand or ability to leverage, a deal now can put you light years ahead of competition Challenges: Need to be progressive in maximizing cash flow, lowering breakevens, and reducing CAPEX, COGs, headcount (Finally, the perfect reason to fire your brother-in-law!)
Presidents Conference Presentation March 3, 2009 11

Industry Outlook: The Good, the Bad, & the Ugly

M&A Issues, Challenges & Opportunities (cont.)

Challenges (cont.): Finding the right acquisitions/partnerships that will truly drive value (must understand economy, reality of clients) Opportunities: Financial changes putting great companies into dire circumstances; deals not available in 2007 are yours in 2009 Pending business closures driving need for fast action (rescues before bank shutdowns can preserve customers; still need to do your homework) Private equity buyers still have interest, but new focus
Presidents Conference Presentation March 3, 2009 12

Industry Outlook: The Good, the Bad, & the Ugly

Other Issues: New Administration

Focus and impact of Policy unknown. Are they: Raising Corporate Taxes? Raising Capital Gains Taxes? Increasing Burden of Inheritance Taxes? (Print largely a family business; long-term wealth can be effectively wiped out in ownership transfer or succession) Open to a Print Industry Bailout? (Probably not)

Presidents Conference Presentation

March 3, 2009

13

Industry Outlook: The Good, the Bad, & the Ugly

The Bob Barometer

Todays rates and values may be the best we see for a while. Reduced client print spending likely to last a bit. If you need to sell in the next 5 years, now might be your best opportunity. Entrepreneurs should reconsider wealth allocation (adding more sure things). May be a good time to put capital back in markets.

Presidents Conference Presentation

March 3, 2009

14

Industry Outlook: The Good, the Bad, & the Ugly

Making the Decision Buy or Sell?

For those facing an upward struggleSELL: Realistically evaluate position. Develop a plan to maximize cash flow. Consider restructuring/overhauling business. Energize and engage all. Sell before the banks require it (hasty sales = terrible return). Hire experienced advisors that can connect you with muchneeded resources.

Presidents Conference Presentation

March 3, 2009

15

Industry Outlook: The Good, the Bad, & the Ugly

Making the Decision Buy or Sell? (cont.)

For those in strong cash/market positionsBUY: Dont pass up this opportunity! Be selective; acquisitions that enhance, not simply add scale, are those that are most valuable. Expand value proposition; focus on good segments:
Labels Certain segments of Direct Mail Wide-format Color VDP Packaging
Presidents Conference Presentation March 3, 2009 16

Industry Outlook: The Good, the Bad, & the Ugly

Making the Decision Buy or Sell? (cont.)

For those in strong cash/market positionsBUY: Avoid segments not seen as growth-driven:
General sheetfed commercial print (w/o vertical mkt strength) Heatset web Business forms Envelopes Entities with heavy concentration in slowing categories such as newspapers, general publications, b/w documents, or troubled verticals, including real estate, automotive, retail

Presidents Conference Presentation

March 3, 2009

17

Industry Outlook: The Good, the Bad, & the Ugly

Key Considerations
If I had the money, what would be my best bet? My current customers purchase X regardless of economy; what do I need to become vendor of choice? Am I positioned in healthy verticals? If not, how can I change? How do I leverage successes to accelerate growth? How much must I invest in my business to stay current? What do I really need? Do I have the cash and market position to grow in this economy and beyond? Do I have the team that can move us to the next level?
Presidents Conference Presentation March 3, 2009 18

Industry Outlook: The Good, the Bad, & the Ugly

Lessons from My Peers

Some are prospering Why? What do they have that I dont have? (Its likely not equipment.) What is their secret for success? How are they innovating, better addressing customer needs? Where are they investing for the future? Some are floundering Why? What can I learn from them? Everybody is not in the same boat. Some are thriving and will continue to do so in good times or bad.
Presidents Conference Presentation March 3, 2009 19

Industry Outlook: The Good, the Bad, & the Ugly

The Impact of Business Valuations

For sellers Yes, business valuations are lower than last year, but New Federal budget goes into effect in October. A sale now will reduce tax consequences. With down market and dwindling portfolios, now is the time to explore new financial opportunities. As with housing market, business values in manufacturing segments likely to go down even further. Creativity and compelling marketing plan are imperative for favorable exit; need expert assistance.
Presidents Conference Presentation March 3, 2009 20

Industry Outlook: The Good, the Bad, & the Ugly

The Impact of Business Valuations

For buyers (sellers, cover your ears) Companies are available for purchase at outstanding prices (and little competition!) Even strong segments are at lower purchase price. But Acquisitions must be strategic, adding tangible value to your current position and customer base. Off-target or poorly executed transactions can put healthy companies into same position as those struggling.
Presidents Conference Presentation March 3, 2009 21

Industry Outlook: The Good, the Bad, & the Ugly

In Summary: M&A Outlook for 2009

More bankruptcies, plant closures, distressed property transfers, and fire sales than traditional deals. Traditional activity returning in 3Q and 4Q with availability of funds; multiples not likely to improve, bank terms restrictive. Majors will again become buyers. Private equity will still seek plays; limited to growth segments. Well-positioned private companies can leverage opportunities to gain significant competitive edge.

Presidents Conference Presentation

March 3, 2009

22

Industry Outlook: The Good, the Bad, & the Ugly

What Does This All Mean to Me?

You cant change the economy, but you need to confront it. Your business is what you make of it. Your best moves are not necessarily the same as your competitors; there is no single formula for success. Work on your issues, address your challenges, and capitalize on your opportunities. (Remember to fire your brother-in-law.) Develop a solid business plan. Share it. Follow it. Refine it. Provide strong, positive leadership. Invest in your people; they hold your future.
Presidents Conference Presentation March 3, 2009 23

Industry Outlook: The Good, the Bad, & the Ugly

How The Open Approach Can Help

Realign Company with Growing Markets; Restructure Regain Business Value through Strategic M&A (Buy, Sell, Divest) and Turnaround Assistance Provide Connections to Necessary Financial Resources, Buyers, Executive Talent, etc. Help Form Strategic Alliances that Extend Capabilities and Open Up New Sales Possibilities Manage Workouts or Develop Favorable Exit Strategies

Presidents Conference Presentation

March 3, 2009

24

Industry Outlook: The Good, the Bad, & the Ugly

Thank You
Thank you for your interest and participation today. The Open Approach welcomes your questions! All inquiries and communication are kept completely confidential.

Presidents Conference Presentation

March 3, 2009

25

Industry Outlook: The Good, the Bad, & the Ugly

Contact Information
The Open Approach 770 Pasquinelli Drive, Suite 426, Westmont, IL 60559 630.323.9700 www.theopenapproach.net Bob Cronin, Managing Partner Ron Seavey, Managing Partner Tam Steele, Partner Tom Playford, Partner Janice ODriscoll, Partner Rich Campbell, Partner
Presidents Conference Presentation

bobrcronin@aol.com rseavey@theopenapproach.net tsteele@theopenapproach.net tcplayford@aol.com jodriscoll@theopenapproach.net rcsrc@aol.com

March 3, 2009 26