Tuck In, Luck Out: A Guide to an M&A Opportunity Built for Two

There’s strength in numbers, goes the old adage, but there’s also strength in the power of one—a cumulative strength that printing companies can achieve by undertaking the kind of merger known as a “tuck-in.”

A “tuck-in” occurs when one firm acquires certain assets and the book of business from another firm. Generally this is accomplished through an outright purchase, the bulk of which is paid for in the form of an earn-out based on sales retained by the acquiring company. By combining their best features and capabilities in a well-planned tuck-in, the companies can eliminate excess capacity, do away with redundant overhead costs, and avoid duplicative staffing. Although the new entity may be smaller than the sum of its parts, it will be a stronger, more stable operation that's better positioned for growth than either the firms would have been on its own.

New Direction Partners has managed seven tuck-ins in the last year, including the “merger of equals” detailed in “A Merger Going Right!”. In this case, the owners agreed to exchange stock in their firms for stock in a new entity that repaid their investments many times over because of its subsequent success.

But, tuck-in partners don’t have to be financial equals, and the rewards depend on how the deal is structured to the benefit of both parties. One of the owners, for example, might decide to sell unneeded equipment, keep the proceeds, or use the cash to pay down debt—whatever best suits the owner’s long-term business and personal goals.

It’s All in the Vetting

Jim Russell, a principal of New Directions Partners, says that whether a company is considering a tuck-in as a buyer or as a seller, it’s crucial to choose one’s potential partner with care. It’s obviously important, for example, to be certain that the acquisition target is not carrying more liabilities than the new entity will be capable of settling.

Something else to keep in mind, says Russell, is that in most cases, an acquisition target will not respond to a direct overture from another printing company. This is where New Direction Partners, with a track record of having facilitated more than 200 successful mergers and acquisitions, can be the independent third party that makes the tuck-in happen.

As the facilitator, New Direction Partners can evaluate candidates recommended by the client and propose tuck-in candidates of its own. The process begins easily and inexpensively by posting a “Firms for Sale” or “Firms Seeking Acquisition” notice at the New Directions Partners web site—an online destination that has become a meeting-place for many companies that probably would not have made contact otherwise.

Peter Schaefer, another principal of New Direction Partners, says that if a company meets any of the following criteria, a tuck-in with another printer could be its best strategic move:

• There is excess production capacity that can’t be filled.

• The company is struggling financially, particularly when it comes to securing credit.

• In the opposite case, where the company is doing relatively well in its home market, it can identify firms that are struggling to survive there.

• The owner is ready to retire and is looking for a suitable exit strategy.


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