Scaling label business to ensure exit readiness

The label and package-printing industries have undergone significant transformation in the past decade, driven by the rise of digital printing, sustainability demands, e-commerce growth and the need for greater efficiency.

For example, the printing and converting industry increasingly adopts Industry 4.0 principles to optimize production processes, reduce downtime and improve product quality.

Acquirers and investors in this space will likely focus on companies that have adopted these new technologies and are well-positioned to meet evolving consumer and regulatory demands.

Over the next three years, many privately-owned companies will look to exit the market with the help of investment banks, but most will be disappointed. Some will receive low offers, others no offers at all and many will fail due diligence.

The main issue is that these businesses were not built with an exit strategy in mind and are simply not ready for sale. This challenge can be overcome by employing a value-creation approach to scaling your company.

Value creation

Even if you do not currently plan to sell your business, it's smart to scale it. This calls for developing value-creation strategies that appeal to buyers and address concerns associated with risk.

Whether you've been in business for five or 50 years, the most effective way of executing this approach is to step back and look through the lens of a buyer. Perform a buyer assessment that identifies value leakage that can undermine your business's long-term outlook.

The most common areas of concern for investors/buyers:

Branding: Does this brand stand out in the marketplace? Does it have name recognition? Has the company won industry awards? Do journalists write about the company and its products?

Dependency: Is the business dependent on the owner? Is revenue reliant on a few core customers Are the profits coming from old legacy products and services?

Talent: Is the management team world-class? Are all the major functions covered? Is morale high? Is there a succession plan?

Technology: Are current technologies in place that enhance efficiency, scalability and quality? These include business processing systems, supply chain and inventory management, data analytics and reporting tools. From a production standpoint, is pre-press technology antiquated or does it employ the latest in digital workflow, computer-to-plate, and automation to rapidly handle incoming artwork and create proofs? Does the printing, converting and finishing equipment incorporate modern auto-registration, ink control and waste reduction technologies?

Processes: Do all departments use playbooks? Are there lead generation and sales processes, marketing strategies, financial controls and forecast systems?

As an acquirer, you will not want to intervene and fix things to successfully integrate the business or invest in significant post-acquisition costs.

Incorporating this mindset requires business owners to include key steps that are often missing in their exit strategy. Let’s call this the ‘value creation gap’.

Value creation strategies

Steps a business can take to fill the ‘gap’ include develop an audit and exit roadmap (might take up to 90 days); strategically reposition to accelerate revenue growth (90 days); enhance operations to build efficiency and scalability (15 to 24 months).

This process challenges private company owners to take a particular approach: to see their business through the eyes of a buyer. This perspective reveals value leaks that may be hidden in your company, not to be confused with your company’s ‘valuation’. Experienced buyers focus on mitigating risk; they do not want to inherit problems. They are already thinking about post-acquisition integration before they even meet you.

An audit and exit roadmap

Buyers examine issues that they most cherish. For this reason, it’s helpful to conduct a saleability test that evaluates key factors, such as brand recognition, a track record for technology investment, management team qualities, successful new product launches, management information standards and client list. The output of the test should shape the operational priorities for the next one or two years. It produces a new report card that aligns priorities and builds value.

Analyze the M&A landscape to obtain a deep understanding of an acquirer’s strategic rationale. This holds for both strategic and financial buyers.

Strategic repositioning

Evaluate your brand strategy to craft a unique market position based on what buyers value, where the market is headed and why customers remain loyal. Create and implement marketing campaigns based on customer research and analysis. Continuously track key performance indicators and refine strategies for improvement. With this knowledge, you will be positioned to implement the operational changes that increase your business’s value.

Operational enhancement

Operational enhancement is where you address audit findings and bring your new story to market. Value leaks can hurt your business. Weak processes, outdated technology, poor morale, slow growth and weak margins can all lead to disappointment when exiting.

By taking this approach you will build a stronger and safer business over time, making your company more attractive to potential buyers and more efficient until the time to sell arrives.

Ian Smith & Kevin Young are principals in The Portfolio Partnership, a value-creation company that scales businesses worldwide with revenue of 20 million USD to 1 billion USD organically and through M&A in the labels, print, packaging, material testing, life sciences, manufacturing and service sectors.

They can be reached at ian@tppboston.com and kevin@tppboston.com or www.portfoliopartnership.com