An overview of the challenges and options business owners in the graphic arts space are facing with the transformation taking place in today's industry.

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2. Business Value Enhancement:
Gary W. Ampulski, Ph.D., Managing Partner, Midwest Genesis
What's an Owner to Do?
Most business owners have spentthe majority of their lives working
in their business and take precious little time to work 0n their busi-
ness. Even dedicated and talented employees don't understand or
grasp the risk an owner takes t0 start and grow a business. lt is true
that success requires a skilled, highly motivated team ofprofession-
als to make a business thrivg but the responsibility and financial
exposure undertaken by the owner cannot be fully appreciated by
those who have never personally guaranteed an equipment pur-
chase, negotiated with a bank for a working capital loan, or made
the personal sacrifices often needed to meet a payroll. The phrase
"it3 lonely at the top" is not an organizational clichd, especially
when the owner faces a survival decision or a potential exit. The
only time there is true recognition for the risk taken by an owner is
when the business is sold or transfened.
The Statistics Are Frightening
The Department of (ommerce data has shown an erosion in the
number of commercial printing establishments since 2002. lndus-
try economists have reported that in the last five yearl more than
6,500 commercial printing establishments have ceased to exist and
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
all sizes. This equates t0 more than $1.5 billion of value per year on
average that is being transferred or lost. With so many commercial
printing companies going out ofbusiness, there is understandable
empathy for the employees who are displaced. But the owners are
the real tragedy in this situation. How can they get recognition for
the risks they have taken when the company goes out of business?
5houldn'tthey get maximum value for their life's work?
What Determines Value?
There are many factors that determine the value of an enterprise.
ln fact, there is a whole science dedicated to the business valuation
process. The most common factors investment bankers focus on are
internal-size, profit generation, historical groMh, and product/
service mix. But there are others-quality of the customer base,
management team, capital expense requirements, etc.-more
than fifty considerations in all. Many ofthese are influenced further
by external factors that impact the industry space in which the busi-
ness operates. For examplg commercial printers are impacted by
the economy, technology, and user preferences perhaps more than
any other industry. The downward pressure these factors have influ-
enced on the industry3 overall investment attractiveness (com-
monly refened to with public companies as the"lnvestment Beta")
and resulting business valuations have been significant. Some say
they represent a "perfect storm"that a business owner must navi-
gate t0 preserve and optimize value.
Print ls Not Dead
Print is not dead-not by a long shot. ln fact, in a recent article
in USA Today, "Don't write off print ads ju$ yeti Michael Wolff
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
the problem? Some blame the ad agencies for making the creative
and copywriting elements of the communication a lost art. They say
there3 too much focus on how their clients'video and digital-based
advertising performs. Meager returns 0n advertising investment
influence the price the client is willing to pay, making "the agency
business one 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
mostly because those selling it can't represent its value effec-
tively. Yes, technology, operational effciency, systemt and skills
are important in managing costs and preserving margins. But it
is well known that the real value of print is how it interacts with
other forms of media and the value-added services required in the
communication process for a specific message to be truly relevant
to a very targeted audience. lndustry providers who understand
this and offer customers solutions that address it have found a way

3. to succeed in an industry that is eroding, and their business per-
formance represents "best-in-class" growth and profitability. Those
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.
ls Reinvesting the Only Option?
The real purpose of any business is to create value for the share-
holders. Everything else comes from that. When value is not contin-
uously being created, the future is anything but bright. With all the
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
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 without a 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-
tion, and more often than not, a busted process.
5o what's a printer to do? What decisions need to be addressed?
What investments are required? What new services need to be
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
"mark on paper," process innovation, and value-added services.
But any industry in transition requires investment to survive-
investment that often involves personal risk and drives self-
obsolescence in order t0 preserve the overall business and the
client relationships that took s0 long to develop and are becoming
increasingly difficult to retain. ln many ways understanding how all
the issues interact t0 impact a business and developing a strategy
to address them may be the most important element of all when it
comes to enhancing the value ofa particular enterprise.
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,
strategic volue, foir morket volue, book volue, and liquidotion volue
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4. all have different meanings. Each has its purpose, methodology,
rules, and authorities for determining how it is established and
what it is. Each yields a different outcome for both buyer and seller.
The only value that is appropriate for a business is the one that is
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
that is transferred to the employees (through an ES0P) or one that
is sold to another industry player (with redundant costs that can
be taken out 0fthe combined entity) 0r one that is supported by
a financial partner as part of a recapitalization. 0nce the owner's
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 is willing to offer.
And from the sellerS perspective, it is not 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
and discipline. There is the proverbial "country club value" or what
an owner perceives his business is worth based on what one ofhis
golf buddies claimed to have gotten for his business. Another is
"historical value" and is based on what someone might have sug-
gested 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 transaction. At the very least,
they can cause confusion, unrealized expectations, and certain dis-
appointment for the uninformed.
ln the final analysit there are three major factors that must be in
alignment in order for value to be optimized for any enterprise.
Beyond the buiin ess and finonciol markel conditions there are per-
sonal considerations.
Even ifa business is growing and approaching peak operating and
financial performance, and the debt and equity markets are condu-
cive to supporting an ownership transfer, if the business owner is
not psychologically ready to sell and personally looking forward to
moving on, the transaction will not likely be completed.
0fthe three conditions for a sale, "personal readiness ofthe owner"
probably causes more deals to fail in the end than any other. lt
is one that is the most frustrating since it usually only becomes
evident after considerable time has been invested in working
through the details (and due diligence) of a transition. lf an owner
doesn't precisely know what he or she will be doing the day after
the business is to be transfened, they are probably not really ready
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
that can work to improve the operations, but the personal factor is
something only the business owner can really assess. lt is not some-
th ing that can be done overnight. lt takes seri0us thought, delibera-
tion, and time to process.
5o how does a business owner improve the value of his life3 work
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 experi-
enced in the industry and trained t0 ask all the right questions. This
person should lay out the alternatives and assemble a team to plan
and implement the appropriate combination of actions needed
specifically for your unique situation. You may not have the time
to do this 0n your own. There is too much at stake to try, and you
probably shouldn't.
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-
nent, ond business volue enhoncenent. Mr. Ampubki holds a 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)
fron the Exit Pl1nning lnstitute. He con be reached ot 847-573-9966 or
g on p u I ski6 eorth Iin k. n et.
Gary W. Ampulski
PhD, CM&AA, CEPA
Managing Partner
{ Uiawest Genesis
www. mldwestgenesls. com
601 E. Saddlebrook Ln. O: (847)573-9966
Vernon Hills, lL 60061 F: (847) 573-9988
gampulski@midwestgenesis.com Mt (8471323-94f7