Healthy Deal for Dr. Leonard’s Healthcare

The sale of Dr. Leonard’s Healthcare Corp., which consists of the Dr. Leonard’s and Carol Wright Gifts catalogs, is good news for owner American Securities, which had the businesses on the selling block for only a few months. But the transaction may also be good news for the catalog industry as a whole.

In mid-March, private equity firm Cortec Group signed a letter of intent to acquire the two Edison, NJ-based healthcare, home products, and gifts catalogs for about $200 million. A source familiar with the deal says the sale should close by mid-May. New York-based American Securities had bought Dr. Leonard’s Healthcare, then a $100 million company, in July 1998. The latest revenue figures for the business were unavailable at press time.

Dr. Leonard’s Healthcare president Steve Brotman would not comment on the deal. Calls to Cortec went unreturned.

The New York-based Cortec’s offer beat out bids by fellow private equity firms Freeman Spogli, U.S. Equity Partners, and Oak Hill Capital Partners. Cortec’s portfolio includes medical equipment manufacturers Gaymar Industries and Plexus Medical.

According to Mokrynski & Associates’ data card for the Dr. Leonard’s title, the catalog has more than 2.5 million 12-month buyers, mostly mature consumers, who spend an average of $38 an order. The typical Carol Wright Gifts customer is 48 year old and has an average household income of $30,000-$35,000. Carol Wright Gifts has nearly 1.7 million 12-month buyers, according to its data card, who spend an average of $32 an order.

More catalog deals to follow?

According to online newsletter “The Daily Deal,” Cortec is paying about eight times earnings before income, taxes, depreciation, and amortization (EBITDA). That Dr. Leonard’s fetched such a high multiple shows that the company “is a premier property, with good growth and large operating margins,” says Mike Petsky, CEO of New York-based investment bank Petsky Prunier. Many other consumer catalog businesses, he points out, have been commanding only four to six times EBITDA.

Once it acquires the company, Cortec’s challenge will be to take Dr. Leonard’s to the next level, Petsky says, which could lead to an initial public offering and additional acquisitions.

And speaking of acquisitions, Petsky notes that there’s “a lot of pent-up demand out there” for catalog companies. He’s predicting that the high-profile nature of the deal could spur more mergers and acquisitions activity this year.

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