Mergers & Acquisitions: Few Wanted to Make a 4Q Deal

Mar 01, 2002 10:30 PM  By

Just 21 catalog-related deals were transacted in the fourth quarter of 2001, compared to the 33 deals consummated in October, November, and December of 2000. But given the events of the past year, the relative paucity of mergers and acquisitions is no surprise.

The recession, the Sept. 11 terrorist attacks, and the military actions in Afghanistan prompted many catalogers and investors to put dealmaking on the back burner “until the players can see with more clarity,” says Craig Battle, managing director at Princeton, NJ-based investment bank Tucker Alexander.

Of course, not all companies felt the need to wait. In fact, three catalogers — Black Box Corp., Alloy, and NBTY — made two acquisitions apiece during the quarter.

And Battle predicts there will be plenty of bargains in the coming months. “There’s never been a more attractive period for mergers and acquisitions,” he says. “Larger catalogers will continue to dump titles not perceived to be part of their core business, and retailers will continue to be scaling back or getting out of catalogs, such as what Saks did with Folio. And smaller catalogers that can’t get financing will continue to look for a strategic partner or sell their businesses outright.”

CATALOG AGE DEALS OF THE QUARTER

Alloy Taps Two Teen Companies

When: October and November

What it means: Clearly teen apparel and accessories cataloger Alloy aims to be a budding teen media conglomerate. In November, the New York-based marketer bought 360 Youth, the flagship division of marketing services company MarketSource Corp., which provides media and marketing strategies to advertisers targeting the teen and college markets. Under the terms of the agreement, Alloy is to issue approximately 1.8 million shares of its common stock and pay approximately $13.4 million in cash and future performance-based consideration to complete the acquisition. Alloy expects the acquisition to generate $15 million-$17 million in revenue and $3 million in operating income in fiscal 2002.

In early October, Alloy acquired Mount Vernon, IN-based Dan’s Competition, a cataloger of BMX biking equipment and related apparel targeting teen boys. Alloy has issued approximately 2.1 million shares of its common stock and paid $11 million in cash to complete the deal.

“With this acquisition, we’ve strengthened our leadership position in the teen boys’ direct mail and action sports businesses,” says Alloy chairman/CEO Matthew Diamond. The company anticipates that the acquisition will generate $10 million-$15 million in sales during the next year, with an operating margin of more than 15%. “Dan’s will be a positive EBITDA and sales growth contributor,” Diamond says.

The skinny: Alloy plans to marry Dan’s database to that of its California Cheap Skates (CCS) catalog, which sells skateboarding and snowboarding gear and apparel primarily to teen boys.

Live from Vermont: It’s Gardener’s Supply

When: December

What it means: In what marks its first venture into the “live goods” category, $50 million gardening products cataloger Gardener’s Supply Co. has acquired majority ownership of Dutch bulb cataloger Dutch Gardens. Terms of the deal were not disclosed. The Dutch Gardens catalog, started in 1965 by wholesaler Langeveld Bulbs, is a subsidiary of International Garden Products (IGP), which will run Dutch Gardens as part of a joint venture with Gardener’s Supply Co. Burlington, VT-based Gardener’s Supply has tapped industry veteran Leo Vanderlugt, most recently director of merchandising/general manager for Foster & Gallagher’s Breck’s Bulbs title, to serve as president of Dutch Gardens.

The skinny: Could Gardener’s Supply Co president/founder Will Raap have similar deals with other bulbs and plants marketers in the works?

Black Box Takes Two International Bites

When: October and November

What it means: Networking products and services provider Black Box Corp. continued its wheeling and dealing with two more acquisitions. Pittsburgh-based Black Box, which has bought more than 60 companies during the past three years, acquired $3 million Rome-based Di.el Distibuzioni Elettroniche S.r.l. in October and $2 million Kitchener, Ontario-based technical design, installation, and maintenance services firm Lanetwork Sales in November. Terms of the deals were not disclosed. Black Box now has companies in Italy, Belgium, France, Japan, Mexico, The Netherlands, Sweden, Switzerland, Canada, and the U.K.

The skinny: The economic slowdown isn’t a hurdle for everyone. For serial acquirers such as Black Box, Battle says, it allows them to continue their roll-up strategies by purchasing a pair of companies at cheaper-than-ever prices.

Egghead lives in Amazon.com

When: December

What it means: In a bid to broaden its fast-growing but so far unprofitable electronics business, online behemoth Amazon.com bought the assets of defunct online-only software marketer Egghead.com. Amazon paid $6.1 million for the Egghead.com assets, including the name and some intellectual property. Amazon will relaunch Egghead, which filed for bankruptcy in August; customers who type in the Egghead URL are redirected to Amazon’s electronics store.

The skinny: An analyst for Deutsche Banc Alex. Brown believes the Egghead brand could bring 4 million visitors to Amazon over the next year.

FOURTH-QUARTER 2001 CATALOG INDUSTRY TRANSACTIONS
Company Market segment Buyer/investor Investment form Est. price (in millions)
OCTOBER Action PLC Computer equipment Insight Enterprises Acq. of assets $39.0
Di.el Distribuzioni Elettroniche S.r.l. Telecommunications Black Box Corp. Acq. of assets N/A
Dan’s Competition Biking equipment and apparel Alloy Stock purchase $48.0
NOVEMBER Brooks Brothers Men’s apparel Retail Brand Alliance Acq. of assets $225.0
FAO Schwarz Toys The Right Start Acq. of assets $55.0
The San Francisco Music Box Co. Gifts SFMB Acquisition Corp. Acq. of assets N/A
Walter Drake Gifts Brecon Capital Acq. of assets N/A
Lanetwork Sales Ltd. Telecommunications Black Box Corp. Acq. of assets N/A
Premier School Agendas Educational supplies School Specialty Acq. of assets N/A
Scie-Plas Medical supplies Harvard Bioscience Acq. of assets N/A
Zila Dental Distribution Medical supplies Henry Schein Acq. of assets N/A
CatalogCity.com Retail platform Amazon.com Equity investment $5.0
360 Youth Academic advertising Alloy Stock purchase $45.0
DECEMBER Dutch Gardens Dutch bulbs Gardener’s Supply Co. Acq. of assets N/A
HealthCentral.com Nutritional supplements NBTY Acq. of assets $2.8
Holt’s Cigar Cigars HCH Acquisition Group Merger $7.0
Knox NutraJoint/Knox for Nails Nutritional supplements NBTY Acq. of assets $4.0
Aristotle Corp. Educational supplies Nasco International Merger N/A
NeuroSupplies Medical supplies Integra LifeSciences Acq. of assets $4.3
Zila Dental Supply Division Medical supplies PracticeWares Acq. of assets N/A
Egghead.com Software Amazon.com Acq. of assets $6.1
Source: Tucker Alexander, compiled from public information and other nonconfidential sources