With the packaging market starting to boom with acquisitions, is buying a company for the sake of getting larger always a good strategy?
Douglas Lawson, vice president of middle-market mergers and acquisitions with Piper Jaffray & Co. in Chicago, attempted to answer that complicated question at Packaging Strategies 2005, held March 29-31 in Atlanta.
Lawson said that while a number of factors determine the selling price or multiple of a packaging company, overall, size is an important part of the equation.
``There's a clear premium paid for larger companies,'' Lawson said. ``Those companies are usually less risky and attract better financing options.''
Other considerations include the profit margin of the company being acquired, the experience and track record of the management team, whether the company is in a high-growth end market, and whether the customer base is diversified enough to survive losing a contract.
Buyers should determine whether a takeover candidate has good design capabilities and a solid pipeline of new products, Lawson said.
Buyers also should look at whether manufacturing is efficient and low-cost, and whether customers are going offshore for production.
Multiples for packaging companies are running five to seven times earnings before interest, taxes, depreciation and amortization, Lawson said.
Lawson, whose company works with sellers in the packaging market, said the timing for selling a business is good right now. The market is robust and many companies are thinking of testing the waters to see what price they can command in a sale.
``It's a very hot market and definitely a good sellers' market,'' Lawson said. ``And there are some very good buyers out there, from where I sit.''