Presently there are two major methods in which a merger or acquisition occurs in the graphics industry. It is either strategic or a tuck-in. Today I will address the tuck-in method.
A tuck-in occurs when a Buyer is seeking to merge with or acquire a company whose earnings are weak or non-existing. The Buyer is seeking to purchase the Seller’s customer list and sales revenues, along with other intangible assets and “tuck in” the Seller’s production into their own facility. Typically the value of the transaction would have the Buyer offering the Seller a percentage of their trailing 12 month sales revenues. The amount offered might be in the range of 20% to 30% of sales depending on the quality of the customers; large concentrations of sales with a few customers; the gross margin the Buying company believes they will receive utilizing their equipment at the Selling company’s prices; and the likelihood that the Buyer will be able to retain the business. This amount will be paid over a 3 to 5 year period on the retained business year by year, with a cap equal to 20% to 30% of the original trailing 12 months’ sales. An upfront amount will be negotiated and paid at closing.
The acquiring company may or may not retain the Seller’s sales personnel, customer service representatives, or other key inside personnel.
The Seller will retain all of the equipment not needed by the Buyer, working capital, and long-term debt. The Seller will then proceed to have an orderly liquidation of their business. In most cases, the Buyer works with the Seller to make this as painless as possible for both the Seller and the customers.