Deal Market Revving into Gear

If the first quarter is any indication, 2004 is going to be a banner year for industry deal making.

During the first three months of the year, 21 catalog deals were closed, compared with 13 during the first quarter of 2003. “This is a bigger list than we’ve had in a year,” says Craig Battle, managing director of Princeton, NJ-based investment bank Tucker Alexander, which tracks mergers and acquisition activity for Catalog Age.

Granted, a number of the deals involved the usual catalog buyers. Multititle educational products marketer School Specialty, for instance, bought the supplemental education business of McGraw-Hill Publishing and audio-video supplies marketer Califone International, while New England Business Service (NEBS) picked up signage and commemorative products marketer Stephen Fossler Co.

But the buyers involved in the two largest deals of the quarter — Wasserstein & Co.’s purchase of $596.2 million Bear Creek Corp. and Clayton, Dubilier & Rice’s acquisition of $2.8 billion scientific supplier VWR International — are well-heeled private equity firms. Battle suggests that before the end of the year, equity firms could begin investing in somewhat smaller catalogers — those with annual sales of $50 million-$150 million.

CATALOG AGE’S DEALS OF THE FIRST QUARTER

CDR Buys VWR

When: January

The facts: New York-based equity firm Clayton, Dubilier & Rice made its first foray into the catalog industry with its purchase of West Chester, PA-based conglomerate VWR International for $1.65 billion. VWR, publishes eight catalogs that sell such scientific specialty products as lab safety supplies, chromatography, furniture, and life-science equipment. It had been owned by German-based chemical and pharmaceutical conglomerate Merck.

The skinny: CD&R made headlines in December when it sold copy-store chain Kinko’s to FedEx Corp. for $2.4 billion. That’s a handsome return on its $220 million investment in 1996.

Miles Kimball Embraces the Competition

When: January

The facts: In what Battle termed “the synergistic deal of the century,” low-end gifts and home products cataloger Miles Kimball acquired fellow low-end gifts and home products mailer Walter Drake. In addition to its core catalog, Drake mails Walter Drake Directions, which sells ease-of-living products for seniors; Walter Drake Homewares, which specializes in kitchen items; Walter Drake Christmas Cards; and Home Marketplace. Aside from Home Marketplace, which targets women with an average household income of more than $50,000, the Drake books target women ages 55-65 with an average household income of $40,000 and up — almost the same audience that Miles Kimball targets. Another Miles Kimball catalog, photo and archival accessories title Exposures, goes after an appreciably more upscale audience: women with an average household income of at least $150,000. Miles Kimball itself was bought last year by Greenwich, CT-based Blyth, a manufacturer/marketer of home fragrances and decor.

The skinny: Shortly after the deal, Walter Drake laid off 350 of its 375 employees and moved its Colorado Springs, CO, operations into Miles Kimball’s Oshkosh, WI, distribution center. About 25 Drake marketing and merchandising employees remain in Colorado Springs.

Drug Wholesaler, Retailer Merge

When: March

The facts: The March 22 stock swap of Farmington, CT-based pharmacy chain Familymeds Group and Clearwater, FL-based pharmaceuticals and supplements wholesaler DrugMax creates a $400 million-plus company. Familymeds reported revenue of $219 million for the year ended Dec. 27, while DrugMax reported revenue of $292 million for the fiscal year ended March 31. Last year Familymeds purchased the InteliHealth healthcare products catalog from insurance company Aetna; perhaps it can lend its direct marketing expertise to DrugMax, which sells to small pharmacies and clinics.

The skinny: Then again, Familymeds has not mailed its catalog since mid-2003, according to spokesperson Rees Pinney: “With the merger, we’ve just been concentrating on other areas of our business.”

Direct Holdings Buys Time Life Unit

When: January

What it means: By adding the Time Life music and video unit to its stable, Direct Holdings Worldwide will have annual sales exceeding $500 million. Direct Holdings was formed last year as a partnership of media player ZelnickMedia and private equity firm Ripplewood Holdings to acquire $247.4 million Lillian Vernon Corp. The Time Life unit markets primarily through its Website, a wholesale division, and infomercials. Rumor has it that Direct Holdings may try to resurrect the Time Life print catalog.

The skinny: One advantage of the deal was tremendous back-office synergies, says Jonathan Shapiro, president of Lillian Vernon. Four months after the deal was completed, Shapiro says, the acquired business was 90% integrated into Lillian Vernon’s operations. “We’re shipping all of the videos right next to the personalized products,’ he says. “This has been one of the best integrations I’ve been a part of.”

FIRST-QUARTER 2004
CATALOG INDUSTRY TRANSACTIONS
Company Market segment Buyer/investor Investment form Est. price (in millions)
JANUARY Bliss Beauty products LVMH Moet Hennessy Louis Vuitton Acq. of assets N/A
Charles Keath Apparel and home decor Direct Marketing Services Acq. of assets N/A
Fannie May/Fanny Farmer Candy Alpine Confections Acq. of assets $38.9
Time Life Music and video products Direct Holdings Worldwide Acq. of assets N/A
Walter Drake Housewares and stationery Miles Kimball Acq. of assets $53.0
Bluefly Apparel Redwood Grove Capital Mgmt. Equity investment $5.0
Califone International Audio-video systems School Specialty Acq. of assets N/A
Euro Dental Holdings GmbH Dental products Henry Schein Acq. of assets N/A
McGraw-Hill Childrens Publishing Supplemental education products School Specialty Certain assets N/A
Stephen Fossler Co. Signage and commemorative products New England Business Service Acq. of assets $27.0
VWR International Laboratory supplies Clayton, Dubilier & Rice Acq. of assets $1,650.0
FEBRUARY FAO Schwarz Toys D.E. Shaw Acq. of assets $41.0
Varsity Spirit Cheerleading uniforms National Spirit Merger N/A
Daydots Food-safety products Ecolab Acq. of assets N/A
T3 Corp.’s Scientific Info. Technology Technology products CDW Corp. Certain assets N/A
MARCH Ann Morris Enterprises Products for the visually impaired Living Aids Acq. of assets N/A
Bear Creek Corp. Food, gifts, and plants Wasserstein & Co. Acq. of assets $260.0
DrugMax Phamaceutical products Familymeds Merger $50.0
Rocky Mountain Motorworks Automobile acccessories Mid America Motorworks Acq. of assets N/A
Silvo Hardware Co. Home and garden products Creative Catalogs Corp. Acq. of assets N/A
The Walking Co. Footwear Big Dog Holdings Acq. of assets $19.0
Source: Tucker Alexander, compiled from public information and other nonconfidential sources

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