Busvalueenhancement Gampulski Themagazine March2013 131004124833 Phpapp01

7/27/2019 Busvalueenhancement Gampulski Themagazine March2013 131004124833 Phpapp01

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Refine Your Business at theContinuous lmprovement Conference

April 7-10Indianapolis, lndiana

Fr3E pnrnnncE INDUSTRIESE OFAMERIGAYour National andLocal Resource


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Business Value Enhancement:Gary W. Ampulski, Ph.D., Managing Partner, Midwest GenesisWhat's an Owner to Do?Most business owners have spentthe majority of their lives workingin their business and take precious little time to work 0n their busi-ness. Even dedicated and talented employees don't understand orgrasp the risk an owner takes t0 start and grow a business. lt is truethat success requires a skilled, highly motivated team ofprofession-als to make a business thrivg but the responsibility and financialexposure undertaken by the owner cannot be fully appreciated bythose who have never personally guaranteed an equipment pur-chase, negotiated with a bank for a working capital loan, or madethe personal sacrifices often needed to meet a payroll. The phrase"it3 lonely at the top" is not an organizational clichd, especiallywhen the owner faces a survival decision or a potential exit. Theonly time there is true recognition for the risk taken by an owner iswhen the business is sold or transfened.The Statistics Are FrighteningThe Department of (ommerce data has shown an erosion in thenumber of commercial printing establishments since 2002. lndus-try economists have reported that in the last five yearl more than6,500 commercial printing establishments have ceased to exist andthey say another 5,000+ are forecast to g0 away in the next fiveyears. These are notjust the very small shops but establishments 0fall sizes. This equates t0 more than $1.5 billion of value per year onaverage that is being transferred or lost. With so many commercialprinting companies going out ofbusiness, there is understandableempathy for the employees who are displaced. But the owners arethe real tragedy in this situation. How can they get recognition forthe risks they have taken when the company goes out of business?5houldn'tthey get maximum value for their life's work?What Determines Value?There are many factors that determine the value of an enterprise.ln fact, there is a whole science dedicated to the business valuationprocess. The most common factors investment bankers focus on areinternal-size, profit generation, historical groMh, and product/service mix. But there are others-quality of the customer base,

management team, capital expense requirements, etc.-morethan fifty considerations in all. Many ofthese are influenced furtherby external factors that impact the industry space in which the busi-ness operates. For examplg commercial printers are impacted bythe economy, technology, and user preferences perhaps more thanany other industry. The downward pressure these factors have influ-enced on the industry3 overall investment attractiveness (com-monly refened to with public companies as the"lnvestment Beta")and resulting business valuations have been significant. Some saythey represent a "perfect storm"that a business owner must navi-gate t0 preserve and optimize value.Print ls Not DeadPrint is not dead-not by a long shot. ln fact, in a recent articlein USA Today, "Don't write off print ads ju$ yeti Michael Wolffreported that, surprisingly, the value of print is recognized bysome of the top leading technology companies, Apple and Googleamong them. And others such as IKEA, LEG0 Ray-Ban, Old Spice,and Harley-Davidson continue to spend heavily on print. 5o what'sthe problem? Some blame the ad agencies for making the creativeand copywriting elements of the communication a lost art. They saythere3 too much focus on how their clients'video and digital-basedadvertising performs. Meager returns 0n advertising investmentinfluence the price the client is willing to pay, making "the agencybusiness one ofthe most unhappy, maligned, and low margin out-posts of the media worldi according to Wolff.And yet, the pressure on the economics of print media continuesmostly because those selling it can't represent its value effec-tively. Yes, technology, operational effciency, systemt and skillsare important in managing costs and preserving margins. But itis well known that the real value of print is how it interacts withother forms of media and the value-added services required in thecommunication process for a specific message to be truly relevantto a very targeted audience. lndustry providers who understandthis and offer customers solutions that address it have found a way


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to succeed in an industry that is eroding, and their business per-formance represents "best-in-class" growth and profitability. Thosewho don't are resigned to be swept up by industry consolidation,disappointment, and liquidation driven by elements 0fthe perfectstorm. But the fact is, the commercial print industry is not dying.It's being reconfigured, and those changing the mix are enjoyingthe benefits.ls Reinvesting the Only Option?The real purpose of any business is to create value for the share-holders. Everything else comes from that. When value is not contin-uously being created, the future is anything but bright. With all thedynamics that are taking place in the printing industry and todaySeconomy, does the path forward have to be either reinvest or die?And what ifan owner can't reinvest? ls the business relegated to somuch value erosion that corporate death is a near-term certainty?Where is the value in a business that is dedining? Rarely can valuebe realized without a complete understanding ofthe owner3 objec-tives, an honest assessment 0f what the business is worth, and agood plan developed for what can be done to improve it. With this,value can be increased-even in a declining business-and theresults can be significant. Without it, there is wasted time, frustra-tion, and more often than not, a busted process.

5o what's a printer to do? What decisions need to be addressed?What investments are required? What new services need to beoffered? How much time and risk is involved? What priorities needto be established, and where do you begin? All critical questionsto which there is one common, unsatisl,ing answer:"lt depends."lndustry pundits have for the last several years espoused theimportance of reinventing yourself with value-added services. Sotoo have technology providers by advancing the state ofthe art in"mark on paper," process innovation, and value-added services.But any industry in transition requires investment to survive-investment that often involves personal risk and drives self-obsolescence in order t0 preserve the overall business and theclient relationships that took s0 long to develop and are becomingincreasingly difficult to retain. ln many ways understanding how allthe issues interact t0 impact a business and developing a strategyto address them may be the most important element of all when itcomes to enhancing the value ofa particular enterprise.Value ls a Dependent VariableAnother critical considerati0n in the value assessment process isthat value is not an independent variable. Value depends on whois assessing it and for what reason. Morket volue, investment vnlue,strategic volue, foir morket volue, book volue, and liquidotion volue

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all have different meanings. Each has its purpose, methodology,rules, and authorities for determining how it is established andwhat it is. Each yields a different outcome for both buyer and seller.The only value that is appropriate for a business is the one that isdependent on the owner's motives for the transfer of the business.A family business that moves ownership from one generation t0another will have a different criteria for determining value than onethat is transferred to the employees (through an ES0P) or one thatis sold to another industry player (with redundant costs that canbe taken out 0fthe combined entity) 0r one that is supported bya financial partner as part of a recapitalization. 0nce the owner'smotives are understood, the methodology and resulting value canbe established. The availability of debt, equity, seller financing,contingent payouts, and management contracts, as well as taxregulations, also play a key role in what the buyer is willing to offer.And from the sellerS perspective, it is not what the business sells forbut what the owner gets that really matters.0f course, there are other value notions that have far less structureand discipline. There is the proverbial "country club value" or whatan owner perceives his business is worth based on what one ofhisgolf buddies claimed to have gotten for his business. Another is"historical value" and is based on what someone might have sug-gested at some time in the past (usuallyjust before the financialmeltdown). And there is the "emotional value," or what the sellerprides himself in believing the business is worth. The inelevance ofthese perceptions and dangers they represent can be catastrophicin launching a process that precedes a transaction. At the very least,they can cause confusion, unrealized expectations, and certain dis-appointment for the uninformed.

ln the final analysit there are three major factors that must be inalignment in order for value to be optimized for any enterprise.Beyond the buiin ess and finonciol markel conditions there are per-sonal considerations.Even ifa business is growing and approaching peak operating andfinancial performance, and the debt and equity markets are condu-cive to supporting an ownership transfer, if the business owner isnot psychologically ready to sell and personally looking forward tomoving on, the transaction will not likely be completed.0fthe three conditions for a sale, "personal readiness ofthe owner"probably causes more deals to fail in the end than any other. ltis one that is the most frustrating since it usually only becomes

evident after considerable time has been invested in workingthrough the details (and due diligence) of a transition. lf an ownerdoesn't precisely know what he or she will be doing the day afterthe business is to be transfened, they are probably not really readyt0 exit. There are numer0us intermediaries that can help determinewhere the business is in its life and demonstrate the cyclic nature ofthe financial markets to accommodate a transaction and still othersthat can work to improve the operations, but the personal factor issomething only the business owner can really assess. lt is not some-th ing that can be done overnight. lt takes seri0us thought, delibera-tion, and time to process.

5o how does a business owner improve the value of his life3 workwhile trying t0 captain the ship through the squalls in a sea ofoptions that is constantly rocking a boat that might be taking onwater? Not an easy task. Best advice: consult with someone experi-enced in the industry and trained t0 ask all the right questions. Thisperson should lay out the alternatives and assemble a team to planand implement the appropriate combination of actions neededspecifically for your unique situation. You may not have the timeto do this 0n your own. There is too much at stake to try, and youprobably shouldn't.Gory W. Ampulski, Ph.D., CM&AA, CEPA is a seosoned operoting executivewith experience in stntt-ups, joint ventures, internnl gtlwth, clrplrltedevelopment, turnorounds, workout, ond M&A trlnslctions. During thelost eight yeors, Anpulski has ndvised privlte equity groups, lenderc, andmiddle norket business owners on strotegic planning, 0pernting inprove-nent, ond business volue enhoncenent. Mr. Ampubki holds a 85, MS, ondPh.D. in physksfrom the University 0f Michigon. He hos received certificationcredentiols as o Merge$ nnd Acquisitiln Advisor ((M&AA) fron the Allianceof Mergers ond Acquisition Advisors" ond on txit Plonning Advisor (CEPA)fron the Exit Pl1nning lnstitute. He con be reached ot 847-573-9966 org on p u I ski6 eorth I n k. n et.

Gary W. AmpulskiPhD, CM&AA, CEPAManaging Partner{ Uiawest Genesiswww. mldwestgenesls. com

601 E. Saddlebrook Ln. O: (847)573-9966Vernon Hills, lL 60061 F: (847) [email protected] Mt (8471323-94f7

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Busvalueenhancement Gampulski Themagazine March2013 131004124833 Phpapp01