Due Diligence Checklist for Commercial Printing Business

September 13, 2022

by a searcher from Northwestern University - Kellogg School of Management in Nashville, TN, USA

Does anyone have a post-LOI due diligence checklist for deals in the commercial printing space? Any help would be much appreciated. Feel free to DM me or email me directly at redacted Thanks!

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Reply by a professional
from University of Southern California in North Palm Beach, FL, USA

I can’t share a checklist, but I am sharing a printing industry dealmaking example that helped lots of people make lots of money. It might work for you, too. (Let me know.) You might have to forgive the formatting below. Run-on paragraphs (in my publication) don’t appear like you might see below. MERGING SMALL BUSINESSES FOR BIG PROFIT Here’s how we merged small businesses for big profit. It centers on threatened businesses in a heavily-saturated industry. It shows the power of economies of scale. Of eliminating competition without hurting anyone. Employees remained employed. The sellers of their companies got a fair deal. Customers got more and better service. My client, the owner/buyer made lots of money. You might say we transformed lemons into lemonade. It’s also a cautionary tale. It’s a little idea with the potential for big opportunity. Especially if you get the timing right. My idea: If you can’t beat ‘em, join ‘em! You might recall, in the 1990s, the proliferation of print shop franchises. They created more print shops than the marketplace could profitably support. You’re seeing this kind of unhelpful proliferation and industry saturation, today, for other kinds of businesses, aren’t you? The story I’m about to tell you shows how owners can safely exit from businesses whose future is limited. That’s what we’re facing today, isn’t it? All of us are suffering from the global pandemic and the financial crises. Most kinds of SMBs are not doing well, and their owners don’t know when things will get better. The kind of selling and buying I’m going to talk about will be one of the ways deals get done despite the uncertainty. The owner of an independently owned and operated print shop hired me. He was nervous because the customer-pie wasn’t growing. Worse, the slices were diminishing thanks to new competition generated by the incursion of franchised print shop startups. The owner was thinking about selling his profitable company. I suggested that he postpone selling until we could improve the company’s competitive advantages, which would increase the value of the business. Using a script, which I prepared and rehearsed with him, the owner asked competing print shops if they were worried about industry saturation. Most were. So, he bought two of them, each of which served mostly differing market segments within his locale; the kinds of customers he did not serve. Both of the acquisitions were earning a modest profit. Their owners wanted out because they, too, didn’t want to cope with what was looking to be profit-weakening industry saturation. The idea was to operate from one location, so the surviving company (my client’s) could be more efficient and profitable. Before the consolidation these print shops were only running one shift. So, the soon-to-be-larger company shut down the shop with the least desirable location. The employees from the closed shop went to work for the surviving shop. They worked the (new) second shift. Later, in the next M&A transaction, the acquired company was shut down and its employees were hired for the (new) third shift at the surviving shop. (There was no second or third shift before the consolidation.) Closing two print shops enabled the surviving company to sell most of the tangible assets that were owned by his former competitors. The proceeds from the sale of equipment and vehicles, plus the elimination of redundant inventory and overhead, created a windfall profit for the surviving print shop. And each time we merged a print shop we cut out one competitor. As his company became larger, it could do more-sophisticated and higher margin work, the kind of jobs the franchises and smaller print shops couldn’t do. My client used some of the cash he generated from selling surplus equipment, and the cost savings by elimination of overhead (rent and lots of other expenses), to pay down the financing he incurred to acquire the competitors. The company immediately increased its profit and improved its competitive advantages. And then the owner sold it for a lot more money than he would have gotten had he sold the company before doing what we did. You can use this technique to grow your business, even if your industry is not saturated with competitors. But, think twice before trying to grow by consolidating businesses within a (soon-to-be) suffering industry. The accomplishments achieved in the printing industry were significantly reduced when desktop computers, printers and software made it easy and cheap for former customers of print shops to design and publish documents. (And with 3D printing, which is coming on strong right now, it won’t be long before other kinds of companies lose market share.)

Reply by an intermediary
from Creighton University in Los Angeles, CA, USA

I co-founded a YC-backed startup that automates parts of the QoE/DD processes so you don't make any mistakes during the most important part of the acquisition process. It prevents you from looking back and wishing you had asked a certain question during this stage. Our AI product saves you weeks of time and thousands of dollars. I think it would make sense for us to chat. You can schedule a time on my calendar here: https://calendly.com/dealwise/dealwise-30-minute-call

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