With commercial printers hit by steep revenue falls of up to 90% because of COVID-19, print businesses may need to work with other printers if they want to stay in the game, according to industry analyst Richard Rasmussen of Ascent Partners. “We must accept that the world has changed." Ascent has launched a new collaboration program.
“The numerous Australian Commercial Printers (offset and digital printers) that I have recently spoken to have experienced drops in revenue of between 30-90% as a result of economic downturns caused by COVID 19,” Rasmussen says in his Market Watch newsletter.
“Clearly, at that these lower volumes, the vast majority of commercial printers are unprofitable even after they have taken advantage of the financial assistance/relief supplied from the Government, landlords and perhaps suppliers.
 |
| Richard Rasmussen director, Ascent Partners |
“To stay in the game and to have an opportunity to come out the other end with a profitable and sustainable business model, most will need to ‘collaborate’ with other printers – some may be trade printers, others will be competitors, and ‘like-minded’ and/or ‘like situation’ printers.
"Collaboration means working with other printers (or print brokers/managers) to optimise staff numbers, hours of operation, equipment utilisation and minimising expenses. And more likely than not this collaboration will also involve reducing the size of, or the sharing/moving of premises.”
Rasmussen believes the two most common forms of collaboration will be:
A. Reduce Manufacturing and focus on sales and marketing: A significant reduction in on-site manufacturing, focus on manufacturing niches or highly utilised efficient plant and a subsequent increase in outsourcing (collaborate with reputable and established trade supplier/s who can consistently deliver).
B. Joint Venture or Joint Collaboration: The sharing of premises and equipment with another printer (or print manager/broker).
"Either choice may initially seem to be uncomfortable and challenging, especially (B), as most business proprietors are used to ‘running their own race. However, when one objectively considers the facts, the need to survive and to move to a sustainable new model, collaboration may be best alternative for most commercial printers.
“To me, we must accept that the world has changed and that nobody can confidently predict what it is going to look like on the other side. Opinions vary widely – what the fall may be, how long it will last for and how fast and complete the rebound may be. Yesterday, the NAB stated they had a wide variance of best case/worst case scenarios – the reality is, they, as one of Australia’s largest banks, don’t know the extent of the economic fallout of COVID 19.
“If you have, say 50% less commercial print pie (as above between 30% & 90% fall in volumes), you will not need all the staff and machinery. In fact, you need at least half as much, because we already have an industry with vastly under-utilised plant/staff. We also know that sitting and waiting for anticipated volumes is one of our biggest dis-economies of scale.
“Some may argue that ‘when things return to normal’ the commercial print pie will be the same size. However, given the year on year on year consistent falls in volumes over the past 10 years, we have constantly had our pie size reduced. I also contend that COVID 19 will only accelerate the reduction of the pie size even more.
“This is because throughout the crises printer’s customers will have found other means to promote their goods and services. They either will not come back or will come back with less demands for print. Less could be shorter run lengths, reduced pagination, or less range of printed products. And different markets will have different speeds to return to print. So the new norm, post COVID 19, may be 30% less commercial print pie. Again, the truth is we don’t know, but to me this is my best guess.”
He says many businesses were already sailing ‘close to the wind’ pre-COVID 19.
“In my experience in conducting around 20 commercial printing businesses appraisals over the past year, 80% were trading at less than a 10% EBITDA (EBITDA expressed as a percentage of sales). So, any significant drop in volume will push such firms into the red. And unfortunately some significantly into the red and out of business.”
Alternatives to collaboration?
1. Businesses with good pre-COVID 19 profits, who right-size their business throughout the crisis and trade through may buy the distressed businesses (or parts of businesses) that will inevitably come onto the market, to ‘even out’ their sales. \
2. Businesses with low/marginal profits or worse (beforehand) - might tip in more money and punt again. However, post-COVID 19 they may still have an unsustainable business model. Are we just ‘putting off’ the inevitable? Some of these businesses will then fall into category (3) below.
3. Businesses that merge, sell, close or liquidate. Some forced, some by chance, some voluntary.
“There will be slight variations to the above, however I think these will be the main alternative categories. So, isn’t at least an earnest discussion/analysis about how best to collaborate with other printers/producers worthy of serious consideration?”
The main objective of collaboration is for each party is to have a profitable and sustainable business, he says.
“Also, with that, to have a better chance to either pass on the business via succession or to achieve a much higher value when ultimately selling the business – and with (B) the most logical purchaser may be the JV partner.
“The difficulty with (B) is to get the two proprietors to put their egos to the side. They need to be aligned with each other’s interests/objectives and understand that there will need to be a lot of give and take for joint success. Both need to understand that without each other, at some stage down the track, they may not have a business at all.
“In these COVID 19 times, collaborations should at least be on the table as a strategy/possible new business model.”
Ascent Partners is well placed and credentialed to facilitate collaborations, mergers, business sales and acquisitions, he says.
“We have provided over 80 business transactions, conducted in excess of 200 business appraisals/valuations and have the means to dispose of surplus plant and equipment. We have a highly developed a network of over 2,500 businesses on our data base. We know who’s who in the Australian Print Market. We can provide and objective assessment of your business, determining if and what type of collaborations or other strategies should be considered.”
To register interest in finding a suitable business to match with under Ascent’s new Match Making collaboration program, contact Richard Rasmussen, at richard@ascentpartners.com.au or on 0402 021 101. All discussions held in the strictest of confidence.
Ascent Partners have been a specialist business services provider to the Australian Printing and Graphic Arts Industry since 2007. Its services include: Business Appraisals and Valuations; Business Sales, Merger and Acquisition Services; and Machinery Classifieds - a Used Equipment marketing and sales service via the web site www.printmachinery.com.au
