EP 81: How to Sell a Printing Business with the Deal Flow Guy, Rock LaManna

Edwin Mysogland  0:35  
Wroclaw, Amana, he is known as the deal flow guy. And he probably doesn't remember when we met. But what struck me by him about him, I should say that we were at a conference together, and there's probably 300 people, and we're all at these round tables. And he went, he went from table to table asking, how could he help? You know, he was he was he specialized in the printing industry? How could he help? And that struck me that, you know, number one, it takes a lot of courage to do that. And, you know, here at this conference, and for him to do that, it was a telling, you know, telling about what kind of character he was. So let me just share with you a little bit about him. You know, he has been a he's a professional matchmaker in the printing industry. He's been bringing independent businesses and private equity groups together to facilitate Win Win deals. He has done well, while he has, I've known him more in the printing industry, he's worked in, in all kinds of industries. One of the things and you'll hear in this podcast that, you know, he helps, and coaches sellers establish trust, trust between them and the buyers. And he talks about trans transparency. And, and he's a coach. I mean, that's, that's really what he does. He comes alongside of of buyers and helps buyers work with sellers and he coaches the sellers to understand what exactly buyers are looking for when they're buying print print related business. So rock is the CEO of lamonta Consulting Group. His purpose is to assist business owners to buy, sell and grow goals. Rock brings synergistic businesses to private private equity to buy and successfully close the deals. He finds the right buyers for the business owner ready to move on. And the right buyer is the one that shares core values and has the funds to make it happen. And lastly, and this is a this is great about him he is a fourth generation entrepreneur, he's in the in certainly he been in the family business he he knows firsthand, you know just what it takes to be an entrepreneur in a family business and how to exit so I'm certain you'll enjoy you know, regardless of whether you're you're into the printing industry or not, I am certain you'll enjoy my conversation with rocla Mana the deal flow guy Welcome to the show, rocla mana. How are you?

Rock LaManna  3:33  
I'm awesome, man. Today is a day. It's always great to talk deals and business.

Edwin Mysogland  3:39  
Well, it is and and I probably didn't do your introduction justice. But you know, I've been trying to get you on the podcast for a while now. So I guess I from a high level just just the quick overview of rock Lamont in the deal flow guy.

Rock LaManna  3:58  
Well, I would say basically after 48 years, this is my 48th year in doing deals. Yeah, not only for family business, I was in manufacturing my first 25 years now in St. Paul, Minnesota. And I had two businesses. And I was a connected I was a deal maker at the time in the family business, bought the family business and I'm one of 11 children so that was a five year transaction. And then I got involved with an angel venture capitalists that teamed up with me and then he decided go family office in bought me I'm gonna have to tell him yours. Nice. So I said okay, what am I going to do it under 40? What am I going to do? I got three kids and what am I going to do with my future? So it took me 90 months to really make something happen. And so what I started to do is I'm a born and created sales guy and started connections with Three, I'm internationally. And I had great accounts, great relationships after 25 years and then sold my second operation, and then basically got him moved to Florida. So it's been 20 years since 2003. And I decided, and you know what, I could do this for a living. So this is what I'm doing deals.

Edwin Mysogland  5:21  
Well, you know what it was, it's been a, it's been wonderful to get to know you. And I'm certainly I love that the all the work you're doing in the printing industry. And so let's, let's talk a little bit about one, it seems as though from where I'm sitting, you know, that the industry is under consolidation. You know, what, you know, where's this going? And who are going to be the winners?

Rock LaManna  5:50  
Well, my focus is basically when a when is a good deal, okay. Sure. And when you talk about consolidation, consolidation has been going on for years in the printing industry, why technology, of course, you know, digitalization media, less print. And but basically, printing is never going to go away. So as a consolidation is a lot of it is Baby Boomers. It's the founders, that after 30 years, 40 years, have decided to sell their business or exit, or there's gotta be some type of transition. And when you talk about who the winners are, it could be both, both the buyer and the seller.

Edwin Mysogland  6:38  
Yeah, but I was looking at so who are the buyers? Who are the buyers, you know, could because the the consolidation, I'm assuming that, like any other industry consolidation, you have some behemoths that are coming in. And, you know, they're kind of setting setting the bar, and then you have a second tier that, you know, I don't say picking up the scraps, but they're, they're in in the mix, too. So, so and I, and again, I'm saying that in a generality, but I'm not certain from a from a printing industry standpoint.

Rock LaManna  7:10  
So who are the buyers? All right. So first of all, you have to understand the printing industry consists of suppliers, right units, paper and so on. Okay, supply chain, then you got commercial printers, you have both printers, you have embroidery and specialty printing on textiles and so on, right, you got different technologies coming out, you have environmental issues, okay. You have talent to be discussed. And you talk about strategic buyers now, who are the buyers of today, let's just talk about 2223 not 2022 2020 are buyers, that we entertain, that are 90% of our business? Okay. Our private equity.

Edwin Mysogland  8:01  
So what motivates Yeah, well motivates private equity to get into into this bigger, you know, it seems as though from a from a predictability standpoint, you know, printing doesn't it doesn't scream, you know, you know, recurring revenue and, and all the buzzwords that you often associate with private equity. So why are they getting into it?

Rock LaManna  8:26  
Okay, let's talk about that. What about custom me? Do they actually print? No, they outsource everything? How about Vistaprint? Say, Hello, how about stamps.com? Okay, all these people. This is these are businesses. This is technology. And you're talking worldwide now. Okay. You're talking about people in Europe now buying in the United States, South America, we have Japanese emerging into the RV industry all right, in the United States, buying businesses, but when I think printing, I'm thinking labels, look at your, your medications. Like at my age, I got medications, you got labels, how about when you print out? A boarding pass? Everything is printed. Okay, eventually walk through the grocery. Okay, look at the baggage look and we call that flexible packaging. And they're flexible packaging from plastic is not going to paper. Okay. cardboard carton, look at our good friends. Amazon, they just invested $500 million in printing equipment. And they're still outsourcing billions and for them to even print in house up. They may never be able to do it. You see because it takes talent. So that's me you gotta remember our our Donnelly was a three and a half Have a billion dollar business and just one private equity. Okay,

Edwin Mysogland  10:04  
I get it. But you know, I say I get it. But But again, I'm, I'm looking at it from, from the motivation of private equity that, you know, I'm trying to buy the business, enhance it and then exit, right. That's kind of the the mode. So how does that you know what I don't say what am I looking for but I'm still I'm still a little foggy on, you know, am I buying market share my buying customers what what exactly is the motivation behind buying, buying? Printing when it seems is those statistically speaking? You know, the industry is continuing to contract, you know what I'm saying?

Rock LaManna  10:52  
I do in it's pretty much common knowledge, but you have to understand what we're talking about. Okay. You and I talked about Main Street for years, right? business brokerage? Yeah, well, today, it's about mergers and acquisitions. That's the term the jargon that we use, and it's all professionals. But what their deal here is you need to it went from five years ago, a million dollar EBIT up, which we all know, okay, first of all, you got to that's kind of like your threshold to even be a minimum, to even entertain, well guess what's happened in the last 24 months, that minimum threshold now for a seller needs to be between three and $5 million. Okay. And there's companies that are out there at $20 million EBITA. Okay, so guess what the buyers are looking at, when people buy a business, it's for the potential of the business. And they have a strategy. They're not sharing it with the seller. The sellers always got the 3040 years of history saying, Look what I've done my family business, look what I did. That's not the way it's done today, is shared in you're really dealing from entrepreneurs that have a mindset of technology, or innovation. Well, those days are over. Now, it's down to finance. Now, the first time you're going to be looked at and this is what we do best is we vet, the buyers, who's a really buyer because even private equity. I don't know if you're aware 70 to 80% of deals fail. What do they mean by 70 to 80%? The deals failed. That's after the acquisition, no integration, no experience and so on. Those days are over two because they're looking at P e is looking at certainty and no risk. No really consolidation. Okay, the consolidation is basically with labels and packaging, because that's what's hot right now. Why? Because the margins are great. And understand this. Again, as I say, when we're thinking, you're looking at the typical private equity, equity, five to seven years, most companies today, they buy and hold for an example, Taylor Corporation, a privately held company 3.5 billion in sales. Okay. And what they do is the merger and acquisition, they can't get enough enter diversifying with those acquisitions. Okay.

Edwin Mysogland  13:39  
Sure. Well, again, I mean, I could see it. I mean, they're buying, they're buying revenue, I can see someone like them their motivation, I guess I'm I guess the question I'm, I'm looking at getting or getting getting your thoughts on, is, it seems as though there's different tiers, right, that, you know, you're talking about three to 5 million in EBIT, da and then some moving up to 20. But, you know, start at your what are the the folks from a half a million to 3 million do? Oh, you know, who who are those buyers? Because I think it just, you know, it's almost like the snowball effect, you know, that you've got this tier of buyers that get bought by the next tier of buyers that get bought by the tailors of the world, you know?

Rock LaManna  14:26  
Well, to answer that is it's and that's one of the reasons why we're more of an advisor to less than a million and we're basically trying to coach these first time sellers understand that their first use are usually the founders. And they were ambitious. Maybe they were doing work like doing T shirts or embroidery or something like that, while they were in college. They decided to sell their business why? It's starting to get it's starting to grow. And what's happening with the smaller guy As a first time seller, they're in a way non sophisticated. They run their business in a way, as if it's a family business. And they're looking at all the aspects of not they're working in the business versus on the business. So how do we help these guys and people? Because that's what it is? How do we help these people sell their business, because eventually, they have options. And I will tell you this, many clients of mine that are less than a million of ours, I should say, less than a million dollars, always look at it and go, hold on, man, I can't live on that. I'm going to build it, I'm going to grow it. But what they don't know is they've already spent 20 years trying to grow it. And it's getting harder and harder today, to get the talent in the commitment the clients, right, because there's a lot of competition out there and who's creating competition, private equity, but they're not going after the little stuff. They're going after, like you say, the reoccurring business to growth in different strategies, and they are also partnering with people with exclusive contracts. So once you get a contract, they're not going to depend on a million dollar or less deal to get a contract. Very difficult.

Edwin Mysogland  16:21  
I get it. So as we talk about sellers, you know, we often I'm speaking in an event next week, and I was thinking about what I was going to share with the audience about sellers. And, and, you know, I have a, you know, a short list of, of why sellers are having some of the challenges and it spans all industries. But I'm curious to know, in the printing industry, what, when the sellers are going to the market, what are they lacking?

Rock LaManna  16:56  
First of all, they're not prepared. They are not prepared. They don't have their or their finances in organized. They don't have the right team. What I mean by a team is a advisor, maybe even a broker, okay? Sure. But you have to be specialized in that industry. He can't be a generalist, and make it happen. And the other thing that they don't have, they usually don't look in, because they look in is an expense. A small business owner looks at things as cost. A broker's a cost, okay. And attorney, you need an attorney. That's a cost. You're asking about challenges. The other item is tax advice. How many people will go out in higher tax advice? Sure. But here's the biggest issue that they're not prepared for. And this is what we really try to help add is the emotional aspect of the sale. Yeah, it's 80 to 90% of emotion. Okay, because they're really not what I would call strategies. They really don't know the process. And the challenge is, they will turn their back on me, for example, and say rock, I just can't invest my time and energy to do it. And they'll walk away. We call it go, go dark. And when you go dark, dark, I knew they call him two, three years later, and go in a rock. I tried to grow up, they just can't do it. And guess what happened to the Rebbe? No, no, guess what happened? Other people? Yeah. And once people start marketing your business and let it be known in the industry, suppliers, and so on, is dicot. The confidentiality is critical, then they don't understand that. Because once you're considered for sale, your competition will come in, they'll bash you they will try to buy your book of business. And that's a big term now, book of business. Right. And the other challenge is, nobody wants to sell on the internet. And you know what, internet, right?

Edwin Mysogland  19:04  
Yeah, but our audience probably may not know. So talk a little bit about our notes

Rock LaManna  19:08  
are now basically is a proposal and an offer, with no cash many times no cash down. Okay, because I'm not dealing with the SBA and lot of our clients will not go out for an SBA, you're not buying a business or a job. You're basically investing in a job. Most of our clients today, even small, don't want to go in and invest in their time and effort to oversee threat Shark Tank, they just want to oversee the business. So an earnest basically is hey, listen, you said that you're gonna make $500,000 net income a year. We will give you a portion of that until we pay you at your agreed upon price. And you know what? People don't like that in my work. Mediation is hash, even if there's a cash discount walk away, and don't look back from smaller businesses.

Edwin Mysogland  20:10  
No. And again, the the if then financing, you know, there's some, there's some special circumstances where it might be effective. But but our guidance has always been assume that you're never going to get it. So it's all gravy that you know it, but to sell at 100% earn out that's a that's a that's a tough road to hoe. One of the things, you know, when you and I met you were talking about the three T's. Can you talk a little bit about about that to the audience?

Rock LaManna  20:48  
Yes. It's three T's is basically after 48 years of being an industry, I've learned that you really need to number one T is trust. And not only trusting your cell team that you need to select, you need to personally be trusted. That's potential buyers. That's a lot of people don't look at that. They go, Well, I don't trust this guy. Well, do they trust you? Okay. And before we even introduced them, the key is, I have to vet both the buyer and the seller. So I have to trust both the buyer and the seller, that this may be a potential fit. So T one is trust. Yep. And that includes chemistry, integrity, and so on. And I call it professional services. Because a lot of these deals have to be licensed on some part real estate and so on. Okay, sure, FINRA for the bigger deals, number two was transparency. You have to be completely transparent as a seller, of your finances, of due diligence. Because believe me, when people come in and look at your records and look at your finances that you supply, this is basically under oath, you're, you're supplying this data. Very important. That's why I always believe evaluation, third party valuation is critical in investment in data because that's the number because a lot of people don't even have a CFO, or even a CPA on staff,

Edwin Mysogland  22:40  
or you central as it relates to the second te d are you seeing more and more people doing quality of earnings analysis? Yes, yes,

Rock LaManna  22:50  
definitely. Definitely. And basically, my team, I don't do all the heavy work. I basically outsource all add to the professionals. Okay. But I do control the project.

Edwin Mysogland  23:05  
No, no, I get it. I get it. I was just curious. Yeah. It seems as though that there, I had a fella by Nima Elliot Holland from Guardian due diligence. And, you know, his business is just just a rocketship right now with all the quality of earnings work that he's doing around the country. So at any rate, that I was just curious if that fell into a bucket number, or T bucket number two, right. And it sounds like it does. So what's the T bucket number three?

Rock LaManna  23:35  
Number three is timeline. And the timeline is 90%. Buyer buyers, the one that makes things happen? Okay, because once you have a term sheet, there's always a discussion on that. That's if there's even interest, right? Sure. But that can happen very quickly. I see introduction, phone call second meeting of the minds. Second of all, within a week, we'll have a term sheet for you. Okay, boom. There's a there's a commitment. There's a promise there. Yep. And guess what happens with the seller? Rock? I haven't received anything, right. I received any patience, man, discipline and patience. And then the term sheet is negotiable. negotiate it, maybe even two weeks, because that is the structure. Then you got to talk about a stock purchase asset purchase. And if we're talking about smaller deals, it's less time. Sure. Okay. And it's less communication and so on, but there's always a cost of investment of time and money to bring in the pros to do it. Right. Okay. And then, of course, an LOI in an LOI could take could take weeks. Sure, because what happens is, the sophisticated sellers can Send it to their attorney, their tax advisor, and really look at post transaction, what is really my net? And what am I going to do during the due diligence process? And so on. So that timeline today, the fastest deal I've done that's been over the over and you see here, that would be seven, eight figures, okay, would take at 62 days from introduction to close. Why is because both the buyer and seller, were prepared, okay. And they all have professional teams, usually after the CEO and the CEO get together, the owner and the buyer. They make a basically a promise to each other that we're going to do this deal. Here it is, guess who takes over the attorneys, the attorneys take over? And then they start talking to people like us and so on is okay, who's part of this purchase agreement and who gets paid and disbursements etc, etc. So it's so it's dress last transparency? Timeline? Yep.

Edwin Mysogland  26:12  
So are you seeing what, as you and I both know, time kills all deals. So when you were talking timeline, one of the things that I that has been happening a lot, or that I've been reading, that's been happening a lot, I haven't seen nearly it in our shop. But you know, we're seeing a lot of are hearing a lot about retraining people that you know, you get in you do some due diligence, you know, or better yet, you anchor the price, right? So it's a competitive bid situation, I get in here, I anchor the price, I start doing due diligence, and now I start whittling the price down. And I'm just curious to know whether or not you're seeing that in the the printing industry, and what are you doing to offset that?

Rock LaManna  26:58  
Well,

Edwin Mysogland  27:02  
funny, you mentioned that

Rock LaManna  27:03  
Yeah, yeah. Because it happens to our competition. Why? Because our competition, our transaction sales, guys, they don't have the experience that I have, they don't know how to walk the the buyer and the seller comfortably smoothly through the process. Now, I heard a horror story recently, in the printing industry, that it took nine months for this private equity group, to under loi, no exclusive, but he didn't shop it, the brokers basically use it as an auction, which is a bad thing. Right? To me, an auction is a bad thing for the seller. Why? Because you're letting the world know you're for sale. Okay. And the data is being exchanged, even if there's an NDA, people talk in the industry. Okay. So what happens? After nine months, they get to the table, and they go, you know, what? The traveling 12 months is dropped, right? We see the next 12 months is how do you see it? We don't believe it. And by the way, here's our offer. You know what they say? We call it a walk away? No, thank you walk away. Guess what happened? Trust

Edwin Mysogland  28:23  
100%. But trust, but on the other thing happens. That happens. And unfortunately, you know, we see a lot of sellers or you know that you have that deal fatigue, and you're sitting there going, You know what, my God, I've just spent nine months with this guy, I'm trying to retire and, you know, screw it, let's just let's just get the deal over. And I, you know, like, like I said, I had read an article that 25% of deals get retreated. And and that's an alarming to me is an alarming statistic, especially if you have representation. You know, I can understand, you know, if you're going at it alone, you don't know, you don't know what, what you don't know until you're in it. But with with the Retrade. To me, it's it's just especially when you're going if there's an equity rollover piece or the this, the seller is going to transition for a period of time, it just seems like boy, that is just a bad way to start a new relationship. You know what I mean? Well,

Rock LaManna  29:32  
it happens in my world to the m&a world, okay, but I'll say this. This is where the trust comes in. You need to vet these potential buyers, even though they're said, Hey, we're $150 million in private equity, we have a platform, we're going to buy you well. You know why? Because there's a committee of stakeholders that makes that decision and it's Ander by the way, what you just explained, it's standard in the industry for what I call the scammers. They're scammers to scammers. And you got to know how to walk away. And this is why we condition and prepare our clients that Listen, you better be ready, willing and able to do this deal. Because when it happens, but we'll prepare you for but if my buyer who are 90% of our clients come to me and say rock, you know what, we're going to walk away from this deal. Tell me why. So I can explain it to the seller, who basically hired us as a consultant, and soulmate, because we get paid many times by both the buyer and the seller. But the success fee is by the buyer in our world not to sell here. Now again, and attorneys are involved in this one case I just told you about after nine months, guess what the fee, the late legal fee alone on the seller was $220,000. What's in his head to join that standard, a buyer, we're private equity, private equity is what kind of financing is called OPM other people's money. Sure they spend one and a half million dollars to do a deal, the due diligence lawyers and so on. And this guy's 220. He said their dollars in legal fees and professional fees. People don't take that into account. But who's your part one seller, right? Is Uncle Sam. That's one thing the under estimate,