Are you considering selling your printing shop? If so, then this guide from a qualified and experienced business broker is for you. In this review, we discuss the steps that are involved for selling a printing shop, along with highlighting important industry information and how to determine your printing shop’s value.
About The Printing Industry
The printing industry involves printing on apparel and textile products, paper, metal, glass, plastics, and other materials (Business Reference Guide). It is no secret that the industry as a whole has declined sharply in recent years. However, the industry still remains large, and there is demand for established printing shops who have shown the ability to drive profits in a declining industry. The hope is that, at some point soon, the industry stabilizes or grows slightly. Here are the most recent industry numbers:
- There are approximately 49,000 printing shops in the U.S.
- There was a -2.9% annual growth for the printing industry from 2018 to 2023
- The printing industry generates $79.7 billion in annual revenue
- The annual profit for the printing industry is $3.4 billion
- Experts predict a sizable decline in annual growth (-2.5%) from 2023 to 2028
Commercial Printer Industry
This industry engages in gravure printing, such as the printing of large volumes of magazines and catalogs. Commercial printers usually sell between 50% and 55% of the company annual sales plus inventory, 2 to 3 times the company’s SDE plus inventory, and 4 times the company’s earnings before interest and taxes (EBIT).
Custom Screen Printing Industry
The custom screen printing industry has more than 12,800 businesses. Like the printing industry in general, this industry has also declined recently. Specifically, this industry engages in the screen printing of stationery, invitations, labels, and similar items. Custom screen printing companies sell 40% and 45% of the company’s annual sales plus inventory and 2 to 3 times the SDE plus inventory.
Flexographic Printing Industry
Flexography is a more modern printing method. Companies within this subsector of the printing industry usually sell for between 2 and 5 times their EBITDA and approximately 3 times their EBIT.
Label Printing Industry
Label printing companies primarily engage in commercial printing of various materials and label types. They may also offer other services, such as flexographic printing and quick printing. Companies within this industry usually sell between 2 and 4 times the company’s SDE.
Quick Print Industry
Quick printing, or same-day printing, is an innovative way to meet the needs of customers. Quick printing companies usually sell between 2.5 and 3.5 times the company’s SDE plus inventory and 45% and 55% of their annual sales plus inventory.
How to Value a Printing Shop Business
A market approach is recommended for the valuation of a printing shop, particularly if the owner is planning their exit strategy. With a market approach, the business broker will review your company’s financial information (tax returns, profit and loss statements, etc.) and determine metrics such as your gross profit, earnings before interest, taxes, depreciation, and amortization (EBITDA), and seller’s discretionary earnings (SDE). This information is then multiplied by rule of thumb data for your industry, which is as follows:
- Printing shops sold between 2.29 and 4.31 times the Seller’s Discretionary Earnings (SDE)
- Printing shops sold between 3.26 and 4.78 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Printing shops sold between 0.46 and 0.64 times the annual net sales
How to Sell a Printing Shop
An experienced business broker may personalize your sales experience based on the specifics of your company and sales goals. Keep in mind there are many small steps within each larger one. However, the general steps of the sales process for printing shop owners include:
- Determine your company’s value
- Prepare for the sale
- Seek potential buyers in a confidential manner
- Negotiate a deal with a qualified buyer
- Assist the buyer through the due diligence process
- Close the sale
- Training and transition assistance
Determine Your Company’s Value
As discussed above, your first goal is to determine the value your company has on the market. In other words, how much is a realistic buyer willing to pay to acquire your printing shop? This will help you decide if and when you move forward with selling your printing shop. In some cases, business brokers may recommend improving the value of the company before listing. For instance, some printing shops can increase value simply by doing a better job organizing their bookkeeping.
Prepare for The Sale
Once you decide to move forward with the sale, the next step is to prepare your company’s financial, legal, and operational documents. Trust me, this will save you numerous hours during the due diligence and closing stages. You can start by preparing these documents:
- Federal tax returns
- Profit and loss statements
- Cash flow statements
- Balance sheets
- Insurance policies
- Lease information
- Employee lists
- Customer lists
- Supplier lists
Your broker can provide you with a more extensive list of documents you will need to collect. In some cases, you may also need to discuss the sale with your company’s chief financial officer (CFO), if applicable. However, it is important to limit the amount of people that know about a potential sale to ensure confidentiality (see below).
Seek Potential Buyers in a Confidential Manner
Confidentiality is of the utmost importance when it comes to selling a printing shop. Otherwise, it can disrupt business operations and dissuade potential buyers from making offers as they feel you cannot keep their information and offers private. The best way to maintain confidentiality is to simply hire a business broker you can trust.
Your business broker can see potential buyers through various channels, such as private databases, networks, and connections. In fact, some of the most experienced business brokers have access to hundreds of potential buyers and can often field more than a dozen qualified offers for your printing shop.
Negotiate a Deal With a Qualified Buyer
Once you screen offers and have a shortlist of qualified potential buyers to whom you would feel comfortable selling, you can begin the negotiation process with them. This may involve disclosing more information, so it is important not to try and negotiate with every offer. Ultimately, the goal is to find the best sale price and accomplish your non-financial goals, such as finding a buyer who needs little to no training in order to take over daily operations.
Assist The Buyer Through The Due Diligence Process
The buyer has a right to due diligence. This means they can investigate your company’s details to confirm that they are comfortable moving forward with their accepted offer. Your role is to assist them by providing the requested documents and answering their questions. Your broker’s role is to ensure the process moves swiftly so that you can close the sale sooner, minimizing the risk of setbacks or canceled deals.
Close The Sale
Once due diligence is complete, both sides can find a time to close the sale. This could happen virtually or in-person. The seller, buyer and both of their respective attorneys usually attend. Additional parties such as the escrow agent may attend as well. The closing visit involves a review of the purchase agreement and attaining final signatures. The buyer completes the payment for the company as well. This could be by having the escrow agent release the payment, or the buyer can make the payment directly if they are not using an escrow agent.
Training and Transition Assistance
The transition of the company takes place at closing. However, it may continue long after closing as well as there are some tasks that may take time, such as notifying employees, suppliers, and customers. The seller can also start training the buyer as well. The extent of training should have already been discussed and included in the purchase agreement.
Are You Considering Selling Your Print Shop?
If you are interested in selling your print shop, then contact Sigma Mergers and Acquisitions today. We help print shop owners sell their company for fair market value or greater and help ensure a smooth and enjoyable process by handling the complexities and legalities of the sale for you.