Low Valuations, Lots of Activity

In the second quarter, 31 catalog-related deals went down, compared to just 11 in the second quarter of 2000.

On the surface, the sheer number of catalog-related mergers and acquisitions orchestrated in the second quarter — 31 — indicates that the industry is abuzz with activity. After all, during the second quarter of 2000, only 11 deals were transacted. So valuations must be rising and the industry growing stronger, right?

Not so fast, says Craig Battle, managing director at Princeton, NJ-based investment bank Tucker Alexander. Many of the deals completed this past quarter “needed to get done,” even though valuations for catalog companies remain low. A few examples: Hanover’s sale of its Improvements catalog; Delia’s divestiture of Storybook Heirlooms, Just for Kids, and Gurl.com.

One benefit of the low value placed on catalogs, though, is that private equity money is filtering into the industry. Examples include Dorset Capital’s investment in children’s apparel cataloger/retailer Hanna Andersson and home decor cataloger French Country Living.

Before the mid-1990s, according to Battle, few equity firms were interested in catalogs. “What brought them in then were low valuations, and I think you’re seeing the same thing going on today.”

CATALOG AGE’S DEALS OF THE QUARTER

Storybook Ending for Storybook Heirlooms

When announced: April

What it means: Teen girls’ apparel cataloger/retailer Delia’s sold the assets of Foster City, CA-based children’s apparel catalogs Storybook Heirlooms and Just for Kids to Kirkland, WA-based CelebrateExpress.com, which owns the Birthday Express and Celebrate Express party supplies catalogs. Jan Jewell, CelebrateExpress.com’s founder/co-CEO, says that Storybook Heirlooms’ target market — parents ages 35-44 — is the same as that of Birthday Express. Storybook and Just for Kids will be fulfilled out of Birthday Express’s Greensboro, NC, facilities; Storybook will be relocating to Birthday Express’s Kirkland headquarters.

The skinny: This deal, and the May divestiture of online community Gurl.com, completes the divestiture of New York-based Delia’s noncore properties. In February, Delia’s sold the assets of TSI Soccer to Hillsborough, NC-based Sports Endeavors.

HSN Makes Room for Improvements

When announced: June

What it means: As part of its continuing restructuring to focus on core home decor titles The Company Store and Domestications, Hanover Direct sold its Improvements home and garden products catalog to home shopping television network HSN for $33.4 million. Hanover’s Keystone subsidiary will provide fulfillment services for Improvements under a three-year deal.

The skinny: Some industry observers were surprised at the relatively high price that Hanover fetched for Improvements. “Obviously, to get that price, Improvements must have been doing very well,” Battle says.

Dorset Capital Buys Into Hanna Andersson and French Country Living

When announced: April; June

What it means: Two-year-old San Francisco- and Boston-based private equity fund Dorset Capital invested in children’s apparel marketer Hanna Andersson in April and home furnishings mailer French Country Living in June. Dorset general partner Don Steiner says the company saw an opportunity to grow Hanna Andersson by increasing catalog circulation and possibly opening more stores. French Country Living will use the money to increase catalog page counts and boost circulation, as well as develop its Website.

The skinny: Dorset made its first direct marketing investment last year, in online auction site Smart Bargains. Dorset’s hiring of Steiner, a former Cornerstone Brands executive, could lead to more catalog investments.

Norm Thompson Buys Waterfront Property

When announced: April

What it means: Hillsboro, OR-based gifts and apparel cataloger Norm Thompson Outfitters has bought $3 million Lake Oswego, OR-based gifts mailer Waterfront Living. Terms were not disclosed, but Waterfront Living founder Mark Roberts will continue running the catalog. Norm Thompson has provided fulfillment services for Waterfront Living for nearly two years, so “we already had the back-end systems in place,” says Craig Dewey, senior vice president of catalogs for Norm Thompson. “Now we have to do some branding on the front end.”

The skinny: Dealmaking is all about who you know and, in this case, where you live: Waterfront Living president Roberts is a neighbor of Norm Thompson president Rebecca Jewett.

SECOND-QUARTER 2001 CATALOG INDUSTRY TRANSACTIONS
Company Market segment Buyer/investor Investment form Est. price
(in millions)
APRIL Carnegie Communications Academic resources Alloy Online Stock purchase $25.00
Durham & Co. Personalized products Awards.com Stock purchase N/A
Hanna Andersson Children’s apparel Dorset Capital Acq. of assets N/A
Waterfront Living Gifts Norm Thompson Outfitters Acq. of assets N/A
Storybook Heirlooms/Just for Kids Children’s apparel CelebrationExpress.com Acq. of assets N/A
Wall Street Creations Gifts Nite Lite Products Co. Acq. of assets $0.35
Haddad Electronic Supply Telecommunications Black Box Corp. Acq. of assets N/A
Integrated Cabling Systems Telecommunications Black Box Corp. Acq. of assets N/A
MAY NatureSmart Nutritional supplements NBTY Acq. of assets $28.00
SkyMall Gifts and accessories Gemstar Acq. of assets $47.50
Smith & Wesson Guns Saf-T-Hammer Acq. of assets $15.00
Specialty Catalog Consumer products Specialty Acquisition Corp. Merger $12.20
Cyberian Outpost Consumer electronics PC Connection Stock purchase N/A
Sport Supply Group Sporting goods Emerson Radio Corp. Majority stake N/A
Everything Wireless Consumer electronics 800.com Acq. of assets N/A
Gurl.com Internet community Primedia Acq. of assets N/A
eToys Toys KB Toys Acq. of assets $5.40
National Boston Medical Health and fitness Infotopia Acq. of assets N/A
Roxy.com Consumer electronics 800.com Acq. of assets N/A
Wine.com Food and beverages eVineyard Acq. of assets N/A
JUNE Foster & Gallagher Children’s Group Children’s products 1-800-Flowers.com Acq. of assets $4.70
French Country Living Home furnishings Dorset Capital Acq. of assets N/A
Improvements Home and garden products HSN Acq. of assets $33.40
Miles Kimball Co. Gifts Sun Capital Partners Equity investment N/A
PetQuarters Pet supplies Zcapital Equity investment $2.50
Vivid Communications Telecommunications Black Box Corp. Acq. of assets N/A
DesigNet Telecommunications Black Box Corp. Acq. of assets N/A
MicronPC Computers Gores Technologies Group Acq. of assets N/A
Officesupplies.com Office products Office Depot Acq. of assets N/A
Officefurniture.com Office products National Business Furniture Acq. of assets N/A
Williams Software Internet technology Gourmetmarket.com Stock purchase N/A
Source: Tucker Alexander, compiled from public information and other nonconfidential sources

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