For catalogers looking to boost their Web presence, buying a company for its Internet expertise is cheaper and faster than starting from ground zero. At least that’s the theory behind first-quarter transactions involving Fingerhut Cos., Federated Department Stores, and Hello Direct, among others.
“With these Internet acquisitions, a company is hedging its bets on the Web’s future,” says Andrew Calimano, an analyst at New York-based investment bank Gruppo, Levey, and Co. “The acquiring company doesn’t have to use its research and development resources to create an Internet business from scratch.”
No cataloger was as heavily tied into the electronic commerce theme as Minneapolis-based Fingerhut Cos. In January, the $2 billion general merchandise cataloger acquired a 19.9% stake in Roxy.com, an Internet marketer of digital communications and entertainment systems. This followed December investments in online general merchant Freeshop International and Internet sporting goods marketer Zone Networks.
Then on Feb. 11, Fingerhut itself was acquired by $15.8 billion Cincinnati-based Federated Department Stores, the parent of well-known cataloger/retailers Bloomingdale’s and Macy’s, for $1.7 billion. “Federated’s growth strategy includes building our nonstore retailing through the catalog and Internet businesses,” says Federated spokesman Jim Sluzewski.
The acquisition by Federated didn’t slow Fingerhut’s buying binge, though. In March, Fingerhut acquired a 19.9% minority interest in Austin, TX-based Hand Technologies, a computer hardware firm and Internet service provider.
Hand Technologies was Fingerhut’s fifth 19.9% equity investment in an Internet-related business in the past year. “Fingerhut didn’t have a strong online presence until it began making these equity investments about a year ago,” Calimano notes. “Then Federated bought Fingerhut because of its push on the Internet.”
San Jose, CA-based Hello Direct also got in on the Internet act. In January the desktop telephony tools cataloger bought PhoneZone.com, an online marketer of telecommunications products and services, for approximately $2 million.
“The acquisition adds a new dimension to Hello Direct’s business,” says Brian McConnell, the former president of PhoneZone.com and now director of e-commerce for Hello Direct. “We’re using PhoneZone.com to build our subscriber reach.”
Adding on Other catalogers making acquisitions during the quarter were less concerned with building an online business than with expanding their product lines. For instance, $600 million Appleton, WI-based educational supplies marketer School Specialty was looking to add to its line of physical education and recreational products when it bought the $32.6 million Sportime unit-consisting of the Sportime, Abilitations, Active Minds, and Chime Time catalogs-from Genesis Direct (now Proteam.com). Sportime became expendable when Genesis announced on Feb. 3 that it was repositioning its business to focus on selling sports-related merchandise.
And in March, Rochester, NY-based Transmation, a manufacturer/ cataloger of test and calibration equipment, acquired Marietta, GA-based Metermaster, a $21 million distributor of standard and customized panel instruments and measurement equipment, in part to enhance its “meter modification and distribution businesses,” says John Misiaszek, Transmation’s vice president of finance. But the $1.8 million deal also “gives us much-needed exposure to the Midwest, a region where Transmation formerly didn’t have much of a presence,” he adds.
And in an uncharacteristic move, Tipton, PA-based industrial cleaning supplies cataloger New Pig acquired Oakville, Ontario-based SpillTech Industries, a manufacturer of absorbent products used for industrial and environmental spillage. This is the first acquisition for New Pig, which had insisted earlier that it had no designs to grow through acquisition but instead planned to grow from within.