Harder to sell?

There’s no question that the new postage rates “will make it extremely difficult for smaller mailers to compete and grow their businesses,” says Lee Helman, managing director with New York-based investment bank Financo. While some predict a flurry of deals, the climate could actually slow the industry’s merger and acquisition pace, Helman says. “Several buyers have put the brakes on acquisitions to see how much of an impact it will have on earnings before proceeding with transactions.”

Indeed, if you’re counting on a sale or merger to bail you out, be aware that the bigger bite out of your bottom line likely made you a less attractive target. Fred Anderson, managing director of South Orange, NJ-based Anderson Direct, is aware of two cases in the past few months in which potential deals were quashed because the acquirer got spooked when looking into the historical financials of the seller.

“The postal increase is having a dramatic impact on valuations,” Anderson says. If the present rates were factored in to the historical valuation, in both cases it wiped out the EBITDA [earnings before income, taxes, depreciation, and amortization] number, he says. Everyone is taking steps to mitigate the impact, he notes, “and most marketers will probably wait until after Labor Day to see if the response is there before their next move.”

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