The Toronto deal: a search fund story of time lost

Companies in this industry make everything from the label around your water bottle to dog food bags. The industry comprises traditional offset printing, which typically prints high-volume orders of identical labels, and digital printing, which is great for variable jobs. Coca-Cola once ran a multi-market campaign in which it printed the most popular names in each market on its soda cans – an example of variable printing. At the time of my search the industry was highly fragmented and included many companies in my target size range, $5-30 million in sales. The industry has pros and cons, but I thought it was worth looking into.

My sourcing efforts yielded quite a few responses. I suspect I stood out. For one, I doubt that many young, aspiring entrepreneurs were looking to buy label printing businesses. Also, many of these companies were in locations that typically don’t attract such entrepreneurs. Think Stockton, California and Shreveport, Louisiana.

Unsexy industry + unsexy geography = opportunity.

One of the business owners that got back to me – call him Scott – was in Canada, about an hour outside Toronto. Scott’s company specialized in flexible packaging, which generally has higher margins than some other types of label printing. I sent him a letter, he responded via email, and we set up a call. We spoke, and he told me a lot about his business and confirmed he was in my target size range, but he was reluctant to share specifics on the first call. No surprises yet.

Several people in the industry had suggested I attend Pack Expo, possibly the industry’s largest domestic trade show in Las Vegas. In an email I told Scott I planned to attend, and he replied that he did too. I asked again about financials, and he sent me budgeted financials. They weren’t the clean QuickBooks export I was hoping for. Rather, they were more high-level, annual projections. But they told an attractive story, and he said the company was on budget so far that year. He also emphasized that a couple pending deals could put their revenue well beyond budget.

To ensure we were not wasting each other’s time, I drafted and sent an Indication of Interest (IOI) based on the numbers he had provided. He said I was in the ballpark, and we agreed to meet.

This seller would be one of the first I had traveled to meet in person, and I was very excited. I also thought I could meet a number of business owners and connectors at Pack Expo, as well as learn more about the industry. Plus, I’d never been to Vegas, so I booked my trip.

Scott suggested meeting in a campy, Western-themed restaurant in his Vegas hotel, which we did. The conversation was pleasant and fairly personal, partially by design. I tried to establish an authentic connection, laying the foundation for the trust we would need to make this thing work. He told me about the company history, his personal story and family, and a couple of large pending deals he was working on. He was also developing a proprietary technology that he was very excited about, something about heat-sensitive colors on his flexible packaging.

I then reiterated my request for basic financials, and he agreed to provide them if I came to meet him in person in Toronto. I agreed. I had a real seller who had sent me financials (in some form), seen an offer, and was subsequently asking for a second in-person meeting. This had to be good.

I booked my flight and hotel and traveled from sunny California to snowy Toronto, hoping to verify everything I had learned so far about this company. The following morning I donned my suit and took a taxi for an hour to visit Scott. I remember that the day was cold and slushy. The company was in an industrial area, which highlighted the severity of the view outside my taxi window.

When I saw Scott, he was cheerier and less skeptical than he was when I met him in Las Vegas. He seemed to have greater confidence in my sincerity and in the fact that I had money behind me. He was in sales mode.

He took me around the facility, introducing me to his smiling employees, showing me where the aforementioned innovation was taking place, and pointing out the visibly smooth operations. The place did seem to be running smoothly. Inventory was organized and clean, employees were focused and congenial, and Scott clearly knew what he was talking about. They seemed to be squeezed into their current space a bit, but nothing urgent.

We then had a quick lunch nearby. I don’t remember exactly what we ate, but I remember it was fitting for the neighborhood – hearty and basic, like a bagel sandwich. At this point, I liked Scott, but we were still strangers. I wondered whether he would be true to his word and produce the financials.

We returned to his office after lunch, and he said he didn’t have the financials ready, but that he would send them to me the following week. Sigh… We shook hands, and I got into a taxi to return to Toronto for my flight home.

After another reminder, he sent the real financials the following week. When I received them, they were not what I had expected. Far from it. I studied them carefully to make sure I was reading them correctly. I opened the budgeted numbers he had sent earlier, and then looked back at the year-to-date numbers, which were way off. The actuals were about half of the budgeted numbers on which I had based my offer. Half.

I couldn’t believe it. Was I missing something? Was he jerking me around? I called him, and I don’t remember what his excuse was, but it wasn’t good. I told him I would have to adjust the offer very significantly, and he replied that it wouldn’t make sense to move forward in that case. Thus died another opportunity, along with a couple months of my search.

In a strange twist, he emailed me several months later to ask me to give his son a job. I declined.

Action Items

• Walk through every step of this story and ask yourself what you would have done differently. What mistakes did I make? What was avoidable? What was not? How will you make your process more robust?

• Contact 1-2 other searchers and ask for similar stories of time wasted. Complete a similar analysis of each story.

• Think about what processes, checklists, language, and systems you will need to protect your most valuable asset – time.