ICPF UPDATE

Preparation is probably the hardest part of this process from an operational, financial, and emotional perspective. Concerns about family, employees, lifestyle, and most importantly, long-term finances can be overwhelming. Most sellers have one chance to get this right, and the implications of making a bad decision can be irreparable and devastating, but very few really prepare themselves properly. Let’s talk about operational and organizational concerns. No one wants to buy a company that doesn’t have a talented and motivated management team in place. Owner-operators that are overly involved in daily management, who control the largest portion of the sales, and who don’t possess the ability to delegate or share decision-making with others can be extremely problematic for a buyer. Once a decision has been made to prepare a company for sale, diversification of all of the key management functions takes on greater urgency. It is often difficult for an entrepreneur to deal with the emotions that go along with this aspect of preparing for a sale, but it can be the most important aspect of attracting the right buyer and securing the best possible deal. Many closely held businesses blur the line between necessary business expenses and personal expenses. Family members are often on the books with no-show jobs or higher compensation levels than are appropriate. Personal-type expenses for cars, entertainment, and other items are run through the business. All of this necessitates significant normalization adjustments or add-backs to the company’s cash flow that is presented to a potential buyer. Similarly, the quality of the financial statements is often low. If you are serious about preparing for sale, then you should obtain audited or reviewed financial statements from reputable CPAs and try to minimize the number and magnitude of normalization adjustments that will be required to cast your business in the best possible light. Capital considerations must be made as early as possible, for a buyer will reduce the price for perceived capital investments that it must make to bring the operation up to standard. It is also important to note that every dollar of debt will reduce the net consideration that the sellers receive.

When deals are announced by large publicly traded companies, they generally report to the shareholders that the deal is based upon a fairly low multiple of economic value, something in the four to six range. Yet when the seller looks at the deal, he or she believes that a significantly higher multiple would be gained. How is this possible? The answer lies in the synergies and integration benefits that the deal creates for the buyer. If the buyer can shut down the seller’s plant and move the business to one or more of his existing facilities, millions of dollars of additional cash flow is created for the buyer. The same condition exists if the buyer can shut down one of his own facilities and move the business into the seller’s facility. Industry analysts have reported that paper mill EBITDA, when the paper is consumed domestically, can be in the $250- to $350-per-ton range, so the amount of paper consumed by the seller is often a significant component of the deal. In addition, profits to a corrugated sheet feeder on incremental business can be in the $5- to $10-per-MSF range. If a deal possesses the ability to give a buyer expense reductions, additional mill tonnage, and incremental sheet volume, then the buyer can afford to pay more. Most importantly, when you are valuing your company, you must take into account what the seller’s potential cash flows are from the deal and not just apply a high multiple to your existing cash flow. Understanding the economics of the deal to the seller is crucial to the buyer’s decision-making process.

For most closely held businesses, there is a certain finality to selling their

72 BOXSCORE March/April 2020 business, and they must be prepared emotionally and have a sound financial plan going forward. The closely held business “piggy bank” will no longer be available, and all expenses must be paid for with after-tax dollars. The net proceeds received for the business must be invested wisely for the long term, and lifestyle choices must be made so that the funds will be preserved. In addition, no longer having a business to run and all that comes with it can leave a former business owner with too much unproductive time on his or her hands. It is critical to plan for these life-altering changes well in advance of the decision to prepare for sale. Targeting the right buyer requires a good knowledge of the industry in which you operate and the players within it. Putting a book together and sending it to every prospective buyer can be extremely destructive to your business. Key employees and local competitors will soon find out about your plans and could cause a lot of trouble. The best approach is usually to target the buyers who have a real strategic need to buy you and who will have the largest potential for synergies and integration benefits. Confining access to your company’s information to a limited group of responsible, strategic buyers at a very high level of management is usually the best approach to maximizing value and minimizing potential problems associated with marketing your company.

My best advice for any of you who are considering a sale scenario is to start the process years in advance. Prepare your business operationally and financially, prepare yourself financially and emotionally, and make sure to target the right buyers in order to secure the best possible deal for you and your company.

Mitch Klingher is a partner at Klingher Nadler LLP. He can be reached at 201-731-3025 or mitch@ klinghernadler.com.

Thank you Education Investors

These companies are making a significant contribution to the online education available to all AICC members.

A Very Promising New Decade for Recruiting

Over 180 students who are annually enrolled in North Carolina State University’s paper science and engineering program began taking mandatory corrugated packaging and design curricula this past spring and fall. The new curricula was initiated by ICPF’s recent award of a CAD table and Impact design software. The software, installation, and training were donated to ICPF by Arden Software.

As I began writing this column in January, another recruiting season for upcoming 2020 college graduates and student interns for the summer and fall had already begun. The opportunities for recruiting new graduates into our industry has been expanded dramatically over the past 10 years. During this time, ICPF developed new formal partnerships with an additional 20 university partners and used its educational partnerships and social media to expand its outreach beyond packaging engineering and packaging design students to include majors and minors in marketing and sales, business, supply chain management, graphic design, chemical engineering, industrial engineering, mechatronics, mechanical engineering, and related disciplines. ICPF also grew its existing programming to engage approximately 1,000 students annually. As a result, during the past eight years, ICPF has maintained 700 to 1,100 current students in its corrugated packaging career network who have specifically indicated an interest in a corrugated packaging and displays career. Annually, there are many more students and new graduates interested in securing an entry-level position or student internship than there are related openings in the industry. In fact, in reviewing the hundreds of openings ICPF’s Corporate Partners have posted over the past several years on ICPF’s Career Portal, there has been a remarkable average of seven “qualified” applicants for each opening. The flip side of the process is that companies need to have formal plans in place to successfully convert this volume of potential student recruits and applicants into employees. In this regard, I have seen significant strides that have been taken by some companies in order to compete with CPGs and other industries in recruiting new graduates for the future. For example, numerous firms have started or expanded their student internship programs as a way to identify, evaluate, and most importantly, cultivate future employees. Many firms have centralized their college recruiting process or otherwise streamlined their internal interviewing and recruiting process. Their executives recognize that the old practices of not contacting applicants within several days after they apply, or not conducting interviews and selection on a timely basis, will always result in losing applicants to other firms. For two years in a row, several of these same companies have begun posting openings for upcoming grads on ICPF’s Career Portal as early as August, a full nine months before the graduation

season. In addition to utilizing ICPF’s Career Portal, Résumé Bank, and its other recruiting resources, many companies have begun actively participating in college career fairs. (Visit ICPF’s website calendar at www.careersincorrugated.org for the list of college career fairs.)

ICPF’s board of directors, its members, and its Corporate Partners that financially support ICPF’s educational and outreach initiatives, take great pride in the role ICPF has played and continues to play in “generating a stream of increasingly qualified students to enter the corrugated packaging and displays industry.” The following are highlights of some of ICPF’s contributions to this industry effort during the past decade: • Jump-started, created, or expanded 19 corrugated packaging programs at U.S. colleges and universities. • Established and maintained formal partnerships with 27 colleges and universities across the United States. ICPF annually provides speakers, mentors, plant tours, equipment, and software. • Placed over $12.75 million of corrugated CAD tables, presses, and testing equipment at colleges and universities across the U.S. to educate students in the concepts and skills needed for a corrugated packaging career. Millions of more dollars in design software additionally have been provided by ICPF to universities through the generosity of Esko and Arden Software. • Over just the past year, developed, negotiated, and entered into agreements with 10 universities for an additional million dollars of ICPF equipment and financial awards for the upcoming three years. Some of the elements of the new initiatives include creation of three new corrugated packaging design labs, funding for additional corrugated faculty at four universities, introduction of sales and business into packaging courses, launch of corrugated packaging curricula in two paper-science engineering programs, creation of a program to promote corrugated packaging to attract high school students into university packaging programs, introduction of digital printing on two campuses, expansion of a packaging design program to include evaluation and testing of corrugated materials, creation of new packaging degrees and certification programs for undergraduate students, and expansions of existing corrugated testing and packaging design labs. • Expanded and enhanced the annual interactive Careers in Corrugated Packaging & Displays Teleconference, which has grown from an average of five schools and 85 student participants to regular annual attendance by over 500 students from 18–20 campuses. ICPF’s Teleconferences in February 2019 and February 2020 each drew a record 20 campuses with over 500 students participating. • Launched the Careers in Corrugated Packaging & Displays Social Networkthatannually has 700–1,100 students and upcoming graduates who have joined to specificallypursue student internships and careers in the corrugated packaging and displays industry. • Launched the Careers in Corrugated Student/Executive Dialogue Dinner to enable exceptional students from across the country who have demonstrated a desire to enter the corrugated packaging industry to learn more about the industry and its careers through one-on-one dialogue with corrugated packaging executives. • Through ICPF initiatives and resources, enabled the annual recruiting of well over 100 new graduates and students interns into the industry. In 2019, ICPF enabled and assisted in the recruitment of over 130 student interns and new graduates into the industry through ICPF’s Career Portal, Résumé Bank, Teleconference, Student/Executive Dialogue Dinner, Corrugated Packaging & Displays Social Network, campus presentations, and additional initiatives. • Promoted and expanded the use of ICPF’s corrugated curriculum among colleges and universities around the country to support real-world corrugated instruction. The curriculum that was developed by ICPF and Michigan State University was made available to AICC’s education committee to assist in the development and launching of AICC’s Packaging University. ICPF’s corrugatedcurriculum is accessible from ICPF’s website. • Developed the annual Holiday Weekend in New Yorkinto a unique and successful fundraiser. The 2019 New York event this past December broke both the previous year’s fundraising and participation records. The past 12 events have combined for a net revenue of over $1.44 million to support ICPF’s educational initiatives and outreach. • Over the past decade, annually secured an average of $600,000 in new corporate pledges and donations that will support ICPF’s educational initiatives into the future.

For more information on available recruiting resources in 2020 and into the new decade, visit www.careesin corrugated.org or email info@icpfbox.org.

Richard Flaherty is president of the International Corrugated Packaging Foundation.