MERGERS AND ACQUISITIONS

Dec 01, 2000 10:30 PM  By

Third quarter gets busy In the wake of dot-com fever, catalog M&A activity heats up After a sluggish start to the first half of 2000, it looks like merger and acquisition activity in the catalog industry is on the rebound. According to Princeton, NJ-based investment bank Tucker Alexander, 19 deals were consummated during the third quarter – the same number of deals orchestrated during the first and second quarters combined.

During the third quarter, buyers and sellers began to jump back into the M&A pool “really for the first time since September 1999,” says Craig Battle, a principal at Tucker Alexander. Merger and acquisition activity among catalogers began to subside after the dot-com mania during the last quarter of 1999, when the Internet was all that investors wanted to hear about.

“M&A [in the traditional direct marketing sector] became a buyers’ market, which may have turned off sellers,” Battle says. But now that a number of formerly high-flying dot-coms have crashed, more investors are looking to acquire or invest in companies with strong direct marketing fundamentals.

For instance, in July jewelry, gifts, and tabletop cataloger/retailer Ross-Simons sold a majority interest to New York-based private investment firm Freeman Spogli & Co. for an undisclosed sum. The $250 million Ross-Simons includes jewelry and gifts cataloger/retailer Geary’s, which it bought nearly three years ago. Cranston, RI-based Ross-Simons, which does 67% of its business through its catalogs, 25% through its 11 stores, and 8% via the Internet, will grow to nearly $300 million by year’s end, predicts president Darrell Ross.

Buying as well as selling For the most part, catalogers were less the object of investments than the company doing the investing. “Many added new or existing product lines to their core business,” Battle says.

In September, Dallas-based business-to-business athletic supplies cataloger Collegiate Pacific acquired the assets of Hartford, CT-based soccer goal manufacturer Funnets. Also in September, Collegiate Pacific bought Kesmil Manufacturing, which makes athletic equipment for use in schools nationwide. The deals will enable Collegiate to expand its product line and distribution networks both domestically and internationally. Such expansion, in turn, should help fuel Collegiate’s goal of 40%-60% internal growth, says chairman/CEO Michael Blumenfeld.

A number of the acquisitive catalogers this quarter bought other catalogers. Wilmar Industries, for instance, paid $213.9 million for rival b-to-b maintenance supplies marketer Barnett; K+K America added food service supplier Hubert Co. to its stable of catalogs, which include Conney Safety Products and C&H Distributors; spices cataloger Spices Etc. bought hot-sauce purveyor Mo Hotta Mo Betta.

And although you might think that the venerable W. Atlee Burpee Seed Co. had a lock on the gardening market, in July the Warminster, PA-based company acquired $1.75 million plants cataloger Heronswood Nurseries. Its goal: to enable Burpee to branch out into the perennial plant market – proof that even established household names can be eager to expand.

Of course, the acquisition enables Heronswood to expand as well. “Burpee will handle the business end, allowing us to continue operating the nursery as we always have,” says Robert Jones, a cofounder of Kingston, WA-based Heronswood. “The deal will give us the capital to increase inventory and introduce new plants to the trade.”

The quarter also featured two reunions of sorts. In August, teen apparel marketer Delia’s merged with its own Web subsidiary, iTurf, creating a company called Delia’s iTurf. The $86 million stock deal allows New York-based Delia’s iTurf to improve its bottom line by eliminating duplicate positions and taking advantage of economies of scale and Internet expertise.

Then in September, Latrobe, PA-based Kennametal acquired the assets of metalworking tools supplier JLK Direct Distribution. Kennametal initially spun off JLK in June 1997.