I recently attended the AWA & L.E.K. Consulting Mergers and Acquisitions Executive Forum in Chicago. The event brings together strategic and financial buyers, as well as business owners looking to either sell their business or grow through acquisition. It’s interesting to sit in a room with investors. You hear a lot of Wall Street lingo getting thrown around. The one term that came up, time and time again, was that there’s a lot of “dry powder” in the market place.

In the investment world, “dry powder” refers to cash reserves kept on hand by a company, venture capital firm or individual.  It’s money readily available to make an acquisition. And if you had sat in that room, you would have seen how many investors are chomping at the bit to use their “dry powder.” Truth be told, I’ve never seen the marketplace like this.

Cash is Cheap, Label, Packaging and Converting Marketing is Stable
Why are investors so eager to invest in the label industry, as well as closely-related and packaging and converting markets?  As Thilo Henkes of L.E.K. Consulting has mentioned, the market has a low beta.

Beta is tied to volatility. The lower the beta, the less the volatility.  The reason why labels and packaging is so widely coveted by investors is that with this low beta, investors know they’ll be sitting pretty when this latest bull market comes to an end. And it will come to an end.

Think back to the Great Recession. No matter how bad things got, you still had to buy food. You still had to buy shampoo. And all those items have labels on them. While most people think investors are in search of the next big thing, like Facebook, many find that too risky. Unless you’ve got some pretty deep pockets behind you, you’re going to want a solid return on investment.

Labels and packaging are more than solid. With multiples nearing the double digits, especially for niche markets, they are veerrrry attractive to investors. They are eagerly looking for label companies for sale. Unfortunately, while they’re looking to buy, we’re having a hard time finding people ready to sell.

Emotion is Trumping Financials
Let me give you a rather common scenario that is thwarting investors. A family packaging business looks fantastic on papers. They are highly profitable, niched in all the right “low beta” industries, and innovating in brilliant new ways.

It’s a great time to sell, but the family is quarrelling. The two brothers who share ownership can’t decide if it’s time to sell, and what price they should put on the business. I see this, time and time again. And it has investors scratching their heads, wondering how they can break through the impenetrable tangle of emotion and family politics to create a win-win situation.

There is no easy answer to this, other than to rely on numerics, financials and counselling to help your own business decide when to sell. If your business is strong, and you get independent audits that help assess the true value of your company, there should be no quarreling on price. And if your family needs to work through issues, there are plenty of family business counselors who can help find a resolution.

My only advice is if you’re in this boat, move fast. Those investors won’t be here forever, nor will these market conditions. 


Rock LaManna is the author of L&NW’s popular The Bottom Line column. Rock helps printing owners and CEOs use their company financials to prioritize and choose the proper strategic path. He is President and CEO of the LaManna Alliance, and provides guidance on how to grow a printing business, merge with a synergistic partner, make a strategic acquisition, or create a succession plan. Rock can be reached by email at [email protected].