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  • 24 Jun 2022

If you’re not selling, how does M&A affect your business?

The M&A locomotive shows no signs of slowdown. Barely two weeks go by without another notable transaction. Big companies, mid-sized entities and small businesses are all getting in on the action – shedding off some lesser-known and family names to forge brands that will become the next major players.

The M&A locomotive shows no signs of slowdown. Barely two weeks go by without another notable transaction. Big companies, mid-sized entities and small businesses are all getting in on the action – shedding off some lesser-known and family names to forge brands that will become the next major players.

Indeed, labels and packaging remains one of the most sought-after platforms for investors. Despite all of the changes and turbulence we’ve seen over the last 15 years, the economics and durability of our industry prevail. Businesses and consumers still want – and need – the value made possible on their labels and packaging (information, security, trackability, etc.). Moreover, they depend on it. Pricing is strong, and profitability follows suit, thus making just about any entrance into the business lucrative.

Our industry is consolidating, and M&A is redefining the landscape. Private equity (PE) firms such as Sole Source Capital, Wynnchurch Capital, Warburg Pincus, Clayton, Dubilier & Rice and others have become formidable names holding notable investments. With more money going in manufacturing technology – and rising expectations from our purchasers – it’s tougher to compete. What was once a welcoming venue for entrepreneurs and start-ups is now a venue where the players with the most capabilities and solutions win.  

As the market toughens, no entity can afford to sit idle. So, if you’re not ready to buy or sell, you still need to be taking action to ensure your future. Let’s discuss the three primary areas impacted by M&A activity and what they may mean to you.

Customers. Customers are facing the same changing landscape that you are. But on their side, the looming threat is about partnership. They’re concerned about the new ownership and their commitment to the customers’ businesses. They’re being told that all will remain the same, but what’s actually happening is largely different.

This business has always been one built on relationships. But as companies get larger, the connection often wanes. Customers who used to work directly with owners or family members are getting reshuffled with reorganizations of the business structure. Where customers once felt valued and taken care of, their new contact points are making them feel insecure. And some of them now are being pushed to ordering portals that provide no consultation at all. Add to that the industry chatter about where the new entity is going, and there are more unknowns than customers should feel comfortable with.

This adjustment period can be a game changer. Stay in close contact with shared customers – and prospects – and do what you can to allay their fears. Further, assess your weak points compared to the new transactions and make sure you’re truly taking care of your own. As new entities complete integration, sales and marketing will ramp up. Show your loyalty to your customers’ businesses through meaningful efforts and you can secure their loyalty to yours.

Manufacturing reliability. In today’s market, everyone is concerned not just about your capabilities but also your reliability in getting the base material and substrates to execute orders – and securing the freight to deliver them. How does your story compare against your newly growing counterparts? While larger players may have more general purchasing power, they may not have the personal relationships and ‘feet on the street’ to have leverage. And for those that have long operated under a Just-In-Time model, operations may need significant retooling.

In addition to these issues, the challenges of hiring and retaining top labor talent remain. Regardless of industry advancements and quality controls, craftsmanship will always be a demanded feature.

How can you respond to these issues now, while your larger counterparts work to mobilize their strengths? The small, nimble, and intuitive label enterprises have a huge opportunity to carve real advantage.

Innovations. Finally – like all great success stories – those who innovate dominate. Despite all of the other drivers, people want to be aligned with the energy, excitement, and potential that comes from innovation. What beyond-the-box thinking and creative solutions are you offering to enrich your customers’ businesses?

This consideration is not typically the focus of a large M&A deal. Use your size and flexibility to get a leg up. Sit down with every client (that you want to keep) and find out your value now and where you could improve. Then develop a plan to extend your advantage. The new players are promoting their strengths and will continually become stronger. Your salesforce needs to be out there, working even harder to protect your existing customers – and finding ways where you can gain new ones.

M&A is bringing great change. And change brings great opportunity. Size isn’t the only factor in success. But if you’re going to remain a small independent, make sure you have the customer confidence, stability, and inventiveness to sustain a growing and profitable business.

ABOUT THE AUTHOR

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

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