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Business Value Enhancement:

What's an Owner to Do?

Gary W. Ampulski, Ph.D., Managing Partner, Midwest Genesis
Most business owners have spentthe majority of their lives working

management team, capital expense requirements, etc.-more

than fifty considerations in all. Many ofthese are influenced further
by external factors that impact the industry space in which the busi-

in their business and take precious little time to work 0n their business. Even dedicated and talented employees don't understand or grasp the

risk an owner takes t0 start and grow a business. lt is true

a

ness operates. For examplg commercial printers are impacted by

that success requires

als

skilled, highly motivated team ofprofession-

the economy, technology, and user preferences perhaps more than

any other industry. The downward pressure these factors have influ-

to make a business thrivg but the responsibility and financial

exposure undertaken by the owner cannot be fully appreciated by

enced on the industry3 overall investment attractiveness (commonly refened to with public companies as the"lnvestment Beta") and resulting business valuations have been significant. Some say

those who have never personally guaranteed an equipment purchase, negotiated with a bank for a working capital loan, or made

the personal sacrifices often needed to meet a payroll. The phrase

they represent

a "perfect

storm"that a business owner must navi-

"it3 lonely at the top" is not an organizational clichd,

only time there is true recognition for the

especially

gate t0 preserve and optimize value.

when the owner faces a survival decision or a potential exit. The

risk taken

by an owner is

Print ls Not Dead

Print is not

when the business

is sold or

transfened.

dead-not

by a long shot. ln fact, in a recent article

in

USA Today,

"Don't write off print ads ju$ yeti Michael Wolff

The Statistics Are Frightening

The Department of (ommerce data has shown an erosion in the number of commercial printing establishments since 2002. lndus-

reported that, surprisingly, the value

of print is

recognized by

some of the top leading technology companies, Apple and Google

among them. And others such as IKEA, LEG0 Ray-Ban, Old Spice, and Harley-Davidson continue to spend heavily on print. 5o what's

try economists have reported that in the last five yearl more than
6,500 commercial printing establishments have ceased to exist and

the problem? Some blame the ad agencies for making the creative
and copywriting elements of the communication a lost art. They say

they say another 5,000+ are forecast to g0 away in the next five
years. These are

notjust the very small shops but establishments 0f

there3 too much focus on how their clients'video and digital-based

all sizes. This equates t0 more than $1.5 billion of value per year on
average that is being transferred or lost. With so many commercial

advertising performs. Meager returns 0n advertising investment

influence the price the client is willing to pay, making "the agency
business one

printing companies going out ofbusiness, there is understandable

empathy for the employees who are displaced. But the owners are the real tragedy in this situation. How can they get recognition for the risks they have taken when the company goes out of business?

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 continues

5houldn'tthey get maximum value for their life's work?

mostly because those selling

it

can't represent its value effec-

tively. Yes, technology, operational effciency, systemt and skills

What Determines Value?

There are many factors

are important in managing costs and preserving margins. But

is well known that the real value of print is how

it

that determine the value of an enterprise.

it interacts with

ln fact, there is a whole science dedicated to the business valuation

process. The most common factors investment bankers focus on are

other forms of media and the value-added services required in the communication process for a specific message to be truly relevant

internal-size, profit generation, historical groMh, and product/

service mix. But there are

to a very targeted audience. lndustry providers who understand

this and offer customers solutions that address it have found a way

others-quality of the customer

base,

to succeed in an industry that is eroding, and their business performance represents "best-in-class" growth and profitability. Those

5o what's a printer to do? What decisions need to be addressed?

What investments are required? What new services need

to

be

who don't are resigned to be swept up by industry consolidation,

disappointment, and liquidation driven by elements 0fthe perfect storm. But the fact is, the commercial print industry is not dying. It's being reconfigured, and those changing the mix are enjoying the benefits.

offered? How much time and risk is involved? What priorities need

to be established, and where do you begin? All critical questions

to which there is one common, unsatisl,ing answer:"lt depends." lndustry pundits have for the last several years espoused the
importance of reinventing yourself with value-added services. So too have technology providers by advancing the state ofthe art in

ls Reinvesting the Only Option?

The real purpose of any business is

"mark on
is

paper," process innovation, and value-added services.

to create value for the sharenot contin-

holders. Everything else comes from that. When value uously being created, the future
is

anything but bright. With all the

survivethat often involves personal risk and drives selfobsolescence in order t0 preserve the overall business and the
But any industry in transition requires investment to investment
client relationships that took s0 long to develop and are becoming
increasingly difficult to retain. ln many ways understanding how all

dynamics that are taking place in the printing industry and todayS economy, does the path forward have to be either reinvest or die? And what

ifan owner can't reinvest?

ls

the business relegated to so

the issues interact t0 impact a business and developing a strategy

to address them may be the most important element of all when
comes to enhancing the value ofa particular enterprise.

much value erosion that corporate death is a near-term certainty?

Where is the value in a business that is dedining? Rarely can value
be realized

it

without

complete understanding ofthe owner3 objec-

tives, an honest assessment 0f what the business is worth, and a good plan developed for what can be done to improve it. With this, value can be increased-even in a declining business-and the
results can be significant. Without it, there is wasted time, frustra-

Value ls a Dependent Variable

Another critical considerati0n in the value assessment process
is

that value is not an independent variable. Value depends on who

is assessing

it and for what reason. Morket volue, investment vnlue,

tion,

and more often than not, a busted process.

strategic volue, foir morket volue, book volue, and liquidotion volue

M E E EEE
+
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TMNSFERMETHODS
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TRANSFER

ffANNEL!

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Buy/5ell

l{cAotlated

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MBls

(MTs
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onc-stcpPdvatcAudionr

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Phantom

PublicAurtions Bank Foredosure

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(onsolidat RolFups Euyand Eulld Reops

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llerger

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Rightofl3t Retusal

INTERNAI TRANSFERS

EXTERNAT TRANSFERS

all have different meanings. Each has its purpose, methodology,

rules, and authorities for determining how

evident after considerable time has been invested

doesn't precisely know what he or she

in

working

it

is established and

through the details (and due diligence) of a transition. lf an owner

what it is. Each yields

a different outcome for both buyer and seller.

will

be doing the day after

The only value that is appropriate for a business is the one that is

the business

is

to be transfened, they are probably not really ready

dependent on the owner's motives for the transfer of the business. A family business that moves ownership from one generation t0 another will have a different criteria for determining value than one

t0 exit. There are numer0us intermediaries that can help determine

where the business is in its life and demonstrate the cyclic nature of the financial markets to accommodate
a

transaction and still others

is

that

is

transferred to the employees (through an ES0P) or one that

that can work to improve the operations, but the personal factor
something only the business owner can really assess. lt
th ing
is not

is sold to another industry player be taken out

(with redundant costs that can

some-

0fthe combined entity) 0r one that is supported by

that

can be done overnight. lt takes seri0us thought, delibera-

a financial partner as part of a recapitalization. 0nce the owner's

tion, and time to process.

motives are understood, the methodology and resulting value can

be established. The availability of debt, equity, seller financing, contingent payouts, and management contracts, as well as tax
regulations, also play a key role in what the buyer
And from the sellerS perspective, it
is not is

5o how does a business owner improve the value of his life3 work

willing to offer.

while trying t0 captain the ship through the squalls in a sea of

options that is constantly rocking a boat that might be taking on water? Not an easy task. Best advice: consult with someone experienced in the industry and trained t0 ask all the right questions. This

what the business sells for

but what the owner gets that really matters.

0f course, there are other value notions that have far

less structure

person should lay out the alternatives and assemble a team to plan

and discipline. There is the proverbial "country club value" or what an owner perceives his business is worth based on what one ofhis

and implement the appropriate combination of actions needed

specifically for your unique situation. You may not have the time

golf buddies claimed to have gotten for his business. Another

is

to do this 0n your own. There

probably shouldn't.

is

too much at stake to try, and you

"historical value" and is based on what someone might have suggested at some time in the past (usuallyjust before the financial

meltdown). And there is the "emotional value," or what the seller

prides himself in believing the business is worth. The inelevance of these perceptions and dangers they represent can be catastrophic in launching a process that precedes
a

Gory W. Ampulski, Ph.D., CM&AA, CEPA is a seosoned operoting executive

with

experience

in stntt-ups, joint

ventures, internnl

gtlwth, clrplrlte

development, turnorounds, workout, ond M&A trlnslctions. During the lost eight yeors, Anpulski has ndvised privlte equity groups, lenderc, and middle norket business owners on strotegic planning, 0pernting inprove-

transaction. At the very least,

they can cause confusion, unrealized expectations, and certain disappointment for the uninformed.

nent, ond

business volue enhoncenent. Mr. Ampubki holds

85, MS, ond

Ph.D. in physksfrom the University 0f Michigon. He hos received certification

credentiols as o Merge$ nnd Acquisitiln Advisor ((M&AA) fron the Alliance

of Mergers ond Acquisition Advisors" ond on txit Plonning Advisor

(CEPA)

ln the final analysit there are three major factors that must be in

fron the
g on p u I

Exit Pl1nning lnstitute. He con be reached

ot 847-573-9966 or

alignment in order for value to be optimized for any enterprise.

Beyond the buiin ess and finonciol markel conditions there are personal considerations. Even

ski6 eorth I i n k. n et.

ifa

business is growing and approaching peak operating and

financial performance, and the debt and equity markets are conducive to supporting an ownership transfer, if the business owner is

Gary W. Ampulski
PhD, CM&AA, CEPA

Managing Partner

not psychologically ready to sell and personally looking forward to moving on, the transaction will not likely be completed.

Uiawest Genesis www.

mldwestgenesls. com O: (847)573-9966 F: (847) 573-9988

0fthe three conditions for a sale, "personal readiness ofthe owner"

probably causes more deals to fail in the end than any other.

lt

601 E. Saddlebrook Ln. Vernon Hills, lL 60061

is one that is the most frustrating since

it

usually only becomes

gampulski@midwestgenesis.com Mt (8471323-94f7