A dearth of deals

How few industry mergers and acquisitions were there during the third quarter? So few that the biggest story involved a deal that wasn’t consummated: Bain Capital’s acquisition of School Specialty. Announced on June 2, the transaction fell through when during the due diligence phase, Banc of America Securities, JP Morgan Securities and Deutsche Bank Securities, which had agreed to provide $350 million in debt financing, backed out.

In fact, only eight deals took place during the third quarter, and one of them was Harry and David Holdings’ filing for an initial public offering. In comparison, 16 deals had been completed during the third quarter of last year.

“There’s plenty of demand out there but not much supply,” says Craig Battle, managing director of Princeton, NJ-based investment bank Tucker Alexander, which tracks deal activity for Multichannel Merchant. And with the lackluster economic climate, many potential sellers realized that they weren’t going to get their desired selling price, he says, “so they decided against selling and instead tended to the businesses.”

Interline buys Copperfield

When: July The facts: Maintenance, repair, and operations supplier Interline Brands has expanded its heating, ventilation, and air-conditioning (HVAC) business with its purchase of Fairfield, IA-based Copperfield, a $41 million distributor of specialty ventilation and chimney maintenance products. Jacksonville, FL-based Interline paid $70 million for Copperfield. The $630 million-plus Interline Brands operates several multichannel brands, including Wilmar, Barnett, and Sexauer. The business-to-business multititle mailer went public in December 2004. The skinny: Copperfield brought in $11.7 million in sales for the quarter ended Sept. 30.

Shop.com gets $25 million

When: September The facts: Aggregate shopping Website Shop.com closed its first-ever venture funding through a $25 million round of financing led by Minneapolis-based Oak Investment Partners. The merchant will use the cash to support the company’s aggressive marketing and customer service initiatives, according to president Bruce Sellers. For starters, Monterey, CA-based Shop.com has developed a 15-person customer service and merchandise staff aimed at further accelerating the 800%-plus growth in traffic it saw in 2004. The portal has also added more-robust servers to accommodate the increased traffic. The skinny: Oak Investment Partners is no stranger to the retail business. Its other investments include Dick’s Sporting Goods, Office Depot, and PetSmart.

Harry and David Holdings hits the Street

When: August The facts: The Medford, OR-based parent company of food gifts cataloger/retailer Harry and David and horticultural merchant Jackson & Perkins filed for a proposed initial public offering of common stock. The company, formerly known as Bear Creek Corp., hopes to raise $125 million, according to filings with the Securities & Exchange Commission. According to published reports, the $561.8 million company intends to list its stock on the New York Stock Exchange under the symbol HND. UBS Investment Bank will be the lead underwriter of the offering, working with Banc of America Securities and Calyon Securities. Harry and David will use proceeds of the offering to redeem up to $85.8 million in high-interest notes issued in February. The remaining cash will fund growth initiatives such as expanding its wholesale and direct-to-business sales. The company also hopes to boost the performance of Jackson & Perkins: Its sales slid 9% during the fiscal year ended in March, to $72.9 million. The skinny: As of mid-November, Harry and David had yet to hit the New York Stock Exchange. Sources say that because of the deal’s complexity and a soft IPO market, the owners may be holding off on going live.

Company Market segment Buyer/investor Investment form Est. price (in millions)
JULY The Tog Shop Apparel Appleseed’s Acq. of assets N/A
Good Times Entertainment Video/DVD Gaiam Acq. of assets $40.0
Sport Supply Group Sporting goods Collegiate Pacific Majority investment $32.0
Copperfield HVAC Interline Brands Acq. of assets $70.0
AUG. The Video Collection Video/DVD Infinity Resources Acq. of assets N/A
Harry and David Holdings Food, plants, gifts Public IPO in process $125.0
SEPT. Shop.com General merchandise Oak Investment Partners Capitalization $25.0
PremiumWear Promotional apparel Forsyth Holdings Acq. of assets N/A
Source: Tucker Alexander, compiled from public information and other nonconfidential sources

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