Good Time for Bargain Hunting

When it comes to mergers and acquisitions, one company’s hardship is another’s gain. “When a company is operating under financial duress,” notes Jim Adams, managing director of Wellesley, MA-based investment bank Tulley & Holland, “if it has closed or temporarily stopped mailing, for instance, it winds up being a bargain for the acquiring company, which gets the cataloger’s name and mailing list for a fraction of the cost.”

Distressed catalog properties accounted for nearly half of the 18 industry mergers and acquisitions that occurred during the second quarter. Last year 17 deals were orchestrated during the same time frame.

Northhampton, MA-based Motherwear was one such troubled company. According to a press release, the 21-year-old Motherwear was under “financial siege,” and had to retain Springfield, MA-based Meadowbrook Lane Capital to avoid liquidation. Pangea Holdings subsequently purchased the marketer, which sells apparel and gear for nursing mothers.

Woodworkers Warehouse is another example. It was purchased at a bankruptcy auction by Casper, WY-based Woodworker’s Supply. For the bargain price of $158,000, Woodworker’s Supply picked up the former Trend-Lines’ assets, including patents, vendor lists, and Woodworkers Supply’s 3.1 million-name database.

All in all, says Craig Battle, managing director for Princeton, NJ-based Tucker Alexander, which tracks merger and acquisition activity for Catalog Age, “It’s a great environment for smart catalog operators to buy distressed catalog businesses and try to reposition them.”

CATALOG AGE’S DEALS OF THE SECOND QUARTER

HMS Jewelry Acquires Gem Pak

The facts: In what perhaps was the synergistic deal of the quarter, Dallas-based HMS Jewelry Co. acquired a majority stake in Richardson, TX-based Gem Pak, an importer/wholesaler of custom jewelry packaging and displays. HMS, a subsidiary of jewelry wholesaler SGD Holdings Ltd., purchased 80% of Gem Pak’s common stock.

HMS, which sells to more than 30,000 jewelers nationwide, said the addition of Gem Pak would help it expand product offerings. Besides its catalog, HMS has wholesale, manufacturing, and import operations specializing in gold and platinum jewelry.

The skinny: After the April acquisition, HMS folded the Gem Pak catalog into its core HMS Jewelry catalog, now at 350 pages. The first combined catalog mailed in June.

Schein Builds International Dental Business

The facts: Melville, NY-based Henry Schein, a $3.4 billion medical and dental supplier, acquired Langen, Germany-based dental distributor Demedis, which includes Milan, Italy-based Krugg and Langen, Germany-based Muller & Weygandt. According to spokesperson Susan Vasallo, Krugg was a key component of the deal because Henry Schein’s dental business previously had no Italian presence. The transaction nearly doubles Schein’s international sales and solidifies the company’s position in the European office-based practitioner market.

For the year ended Dec. 27, Henry Schein posted international sales of $576.6 million, a 32% increase from $437.0 million in 2002.

The skinny: The deal was not without complications. As part of its agreement with the German regulatory authorities, Henry Schein divested Muller & Weygandt in July for about $60 million, including assumption of certain liabilities.

Newport Corp. Buys Spectra-Physics

The facts: Irvine, CA-based Newport Corp. instantly achieved a presence in the burgeoning photonics field by purchasing Spectra-Physics, the optical technologies business of Thermo Electron Corp., for $300 million. Photonics, a broad field of research encompassing optoelectronics, lasers, photoprocessing, and spectroscopy, has many applications including barcode scanners, remote-control devices, and fiberoptic communications. The field is expected to reach $15 billion this year.

Newport, which manufactures and markets products for the semiconductor, communications, and life-sciences industries, expects sales to exceed $420 million next year. It also hopes to benefit from $5 million-$10 million of cost reductions in the first year. There is about 5% product overlap between the Newport and Spectra-Physics offerings; the deal will add more than 5,000 products sold by Spectra-Physics to the more than 10,000 products offered by Newport.

The skinny: Spectra-Physics has not mailed its core Oriel Instruments catalog in three years. Rather, Spectra-Physics mails smaller specialty catalogs quarterly. So far there’s been no discussion of integrating Spectra’s photonics product line into Newport’s 1,500-plus page catalog.

Target Unloads Signals, Wireless

What it means: Minneapolis-based retailer Target in late April sold its Signals and Wireless to Twinsburg, OH-based Universal Screen Arts, which owns the What on Earth and Art & Artifacts titles.

Signals and Wireless were two of the 10 Rivertown Trading Co. catalogs that Target — or Dayton Hudson Corp., as it was then named — acquired in 1998. This past January, Target announced it was getting out of the catalog business altogether, putting Signals and Wireless on the selling block and suspending Marshall Fields Direct.

The skinny: The first Signals catalog under its new owner mailed at the end of July. The company is also test-mailing an early holiday version of the Wireless catalog in late September. Wireless had not mailed since early 2003.

SECOND-QUARTER 2004 CATALOG INDUSTRY TRANSACTIONS
Company Market segment Buyer/investor Investment form Est. price (in millions)
APRIL Young Explorers Toys Potpourri Acq. of assets N/A
Motherwear Apparel Pangea Holdings Acq. of assets N/A
Woodworkers Warehouse Woodworking products Woodworker’s Supply Acq. of assets $0.2
Signals Gifts Universal Screen Arts Acq. of assets N/A
Wireless Gifts Universal Screen Arts Acq. of assets N/A
Executive Greetings Business stationery Taylor Corp. Acq. of assets $68.6
EMED Co. Industrial safety and signage Brady Corp. Acq. of assets $190.0
Medco Supply Co. Sports medicine Patterson Dental Co. Acq. of assets N/A
Gem Pack Jewelry HMS Jewelry Co. Acq. of assets N/A
MAY Mackenzie Ltd. Food Ducktrap River Fish Farm Merger $1.5
Presents Direct Gifts First Resources Ltd. Acq. of assets N/A
KBToys.com Toys D.E. Shaw Group Acq. of assets $7.4
JUNE Newport News Apparel Newport News Holding Co. Acq. of assets $53.4
New England Business Services Business products Deluxe Corp. Stock purchase $745.0
Spectra-Physics Optical technology Newport Corp. Acq. of assets $300.0
Micro Warehouse (Europe) Computer products Gores Technology Group Acq. of assets N/A
Jacobs Gardener Supply Co. Office and janitorial products Management Acq. of assets N/A
Demedis Dental products Henry Schein Acq. of assets N/A
Source: Tucker Alexander, compiled from public information and other nonconfidential sources

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