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  • 09 Sep 2021

Converging to drive growth

Bob Cronin of The Open Approach on what label companies can bring to other industries

Bob Cronin of The Open Approach on what label companies can bring to other industries

As recently as 15 to 20 years ago, businesses could survive on doing one thing, and doing it well. Computerland sold computers. Grocery stores sold groceries. And a tiny online company called amazon.com sold books. 

Today, things are dramatically different. Not only are most ‘specialists’ gone, but there are tremendous expectations for every company – in every industry – to provide a total, one-stop-shopping experience. Companies in many industries have ‘converged’, combining capabilities to reinvent themselves as something that can be much more attractive to the purchasing departments that are doing the buying today. The bigger and more diversified you are, the greater your opportunities.

In industries such as labels, we’ve been largely shielded from these impacts. Our innovative nature has produced strong sales and profitability over the past decade. Thus, we’ve been able to be successful independently. Still, the continued consolidation of our industry (and print in general) is leaving fewer (but more diversified) entities to compete in what is becoming a drastically different market. 

The concept of converging is indeed timely. While many of our counterparts’ industries have flattened, labeling still has fortuitous possibilities. This maximizes not only your opportunity for a merger, sale, acquisition, or strategic partnership, but also your chances for long-term success from it. Plus, because of labels’ far-reaching value, you may find a transaction in a different industry to be your best bet.

This makes any deal you may enter a bit more complex. So before considering a transaction, let’s look at the top reasons why investors still find labels so attractive, and how these characteristics will support a new opportunity. 

1. Labels are profitable. First and foremost, most labeling businesses run at healthy margins. They have carved out very specific niches and finetuned operations to enjoy an average EBITDA of 12–30 percent versus the 3–15 percent of commercial print. Such financial muscle enables our owners to stay up-to-date, make steady growth investments, and attract good talent – a hurdle for far too many businesses today. This can provide a great platform entity for an investor or for an entrepreneur.

2. Labeling companies are innovative. Labels can answer consumer and manufacturer needs in creative ways. This helps respond to the trend for one-stop sourcing and deters pressure for commodity pricing. One example is private labeling. While private-label products have historically commanded a good portion of retail sales in Europe (40 percent of grocery sales), they are only just becoming embraced in the US. The excitement over new brands has created premium pricing for the product, letting the label provider to follow suit. Many label companies also have their own R&D. Inventiveness across both the product and labeling/packaging can be a huge asset to manufacturers in most any industry.  

3. Label companies run self-contained operations. Companies in our industry largely run their business with various required file preparation, printing modalities, and finishing/converting capabilities within their own shops (or through very close relationships). This makes it possible to do a single acquisition that propels sales instead of a series of them (or roll-up strategy), gaining results quicker and more cost-effectively. For investors who want immediate returns, a label company can be the optimal target.

4. Labels have (strong) customers in every market. As an industry, we’ve always strived to have a special capability to support our clients. Based on what we do, our companies tend to understand customers’ markets better than any other supplier. And we serve a very broad array of markets. Moreover, we’ve aligned our services to the goals and needs of customers’ organizations and made equipment investments to secure those relationships. This has created both loyalty and barriers to exit you don’t find in other industries. For acquirers, this means revenue stability and well-established sales channels in which they can immediately sell their own products and services as value-added offerings. 

5. Labels show continued growth. Finally, investors want to be in our business because for the most part we are still seeing tremendous growth. We have been one of the fortunate industries that have been boosted by many of the dynamics of online commerce, as well as societal issues such as Covid-19 (e.g. tracking, safety, and security enhancements). Plus, there’s a wide range of opportunities in many other areas. The ability to grow an acquisition on its own or use it as a platform in so many diverse ways makes labeling a huge draw. 

M&A, if done wisely, can be one of the quickest ways you can build a business. And as the points above show, you have many directions to choose from. You can buy, sell, merge, or forge a value-enhancing relationship. And you can do so in multiple potential industries. You’ve succeeded by being bold and making the tough decisions to guide your business to its present juncture. Now’s the time to take advantage of your next opportunities. 

ABOUT THE AUTHOR

Bob Cronin is a regular columnist in Labels & Labeling, writing about M&A activity in the industry.

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