Database-driven deals

Merger and acquisition activity remained strong in the third quarter, as 32 deals were consummated, compared to 30 during the previous quarter and 30 during the third quarter of ’97. Five catalogers-healthcare supplies distributor Henry Schein; nutritional supplements cataloger/retailer NBTY; gifts, toys, and b-to-b mailer Genesis Direct; business-to-business educational supplier School Specialty; and computer networking supplies cataloger Black Box-accounted for nearly half of the transactions, with three acquisitions each.

“The desire for the databases is driving the majority of the deals,” says Andrew Calimano, an analyst with New York-based investment bank Gruppo, Levey, and Co. “The sophistication of databases enables the marketer to pinpoint an audience within a larger audience, which is ideal for targeting a specific niche. It’s like shooting with a rifle instead of a shotgun.”

Reader’s Digest Association’s acquisition of $30 million co-op gifts mailer Good Catalog Co., for instance, should enable the $2.6 billion magazine publisher/marketer to “get ‘younger’ by targeting the more youthful demographic of the Good Catalog buyer,” Calimano says.

At the same time, acquisitions of competitors can enable catalogers to broaden their reach. Such is the case with $350 million Appleton, WI-based School Specialty, which in August bought $180 million Duluth, MN-based educational supplies marketer Beckley-Cardy to increase its market penetration in two geographic regions. “Beckley-Cardy has better penetration in both the South and the Southwest, two areas where we wanted to improve our reach,” says Dave Vander Zanden, president/chief operating officer of School Specialty, whose titles include Childcraft and Sax Arts & Crafts.

Similarly, in September, Lawrence, PA-based Black Box acquired Toronto-based b-to-b computer equipment provider CCI Direct Connect; Columbus, OH-based service integrator Midwest Communications Technologies; and Pittsburgh-based computer and communication products marketer Wakefield Electronics Group. “These acquisitions allow us to increase our presence and customer base in the Canadian and U.S. markets,” says Anna Baird, chief financial officer of $279.8 million Black Box. “We believe they will contribute more than $25 million in revenue and add 8-10 cents in earnings per share over the next 12 months.”

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