More mergers on the cards, according to analysts

At least 42 UK labels firms are prime targets for a takeover and another 65 could be sold off by their parent companies, according to a new report by independent business analysts Plimsoll Publishing.

At the other end of the scale are 12 major companies that are expanding rapidly, largely through acquisitions, and 17 ‘predators’ who are using the misfortune of others to clean up in the market.

Plimsoll's senior analyst David Pattison said: ‘The 42 takeover targets we have identified generally have a similar profile - they are privately owned, are in financial difficulty and have owners who are approaching retirement. Any firm in this position should be listening to the warning bells, because its potential selling price will be in the bargain basement. The other 65 distressed companies are operating as divisions of larger parents. I'm fairly certain that conversations are going on behind closed doors about their future.’

The big players in the market are focusing on companies with sales of around 5m. Interestingly, some are being bought not just because they offer good value for money and an extra foothold in the market, but in case they fall into the hands of competitors. The 29 companies that fall into this bracket are in the fortunate position of being in a sellers' market, so they are able to name increasingly higher prices as availability reduces.

David Pattison continued: ‘These are typically the two classic profiles of the takeover target - up-and-coming industry players and those who have fallen on hard times. Sadly, in the latter category we see some firms that were doing very well only a few years ago but allowed costs, debts and margins to get out of hand. It's worth saying that our research has identified 165 companies whose current value is 50 per cent lower than a credible future value. Potential new owners believe that they can run the company better than the current owners and turn this future value into hard cash. Against a background of over capacity, rising costs and falling margins, consolidation in the UK labels market is inevitable in 2007.’

Plimsoll's brand new VIBE analysis of the labels industry paints a clear picture of each company in the market. It identifies those in financial distress, those with aging boards, those with hidden potential and a range of other factors that affect their likelihood of being taken over. VIBE is available to purchase today by calling 01642 626422 or e-mailing c.sherwood@plimsoll.co.uk. Readers can benefit from a 50 discount when quoting Ref PR04.

Plimsoll, based in Stockton-on-Tees, is one of the leading business analysts in the UK, France and Japan. It has 16,000 customers worldwide who rely on its reports to take crucial commercial decisions.