MERGERS AND ACQUISITIONS: Bargain investments

Mar 01, 2000 10:30 PM  By

Private equity firms buying into b-to-b catalogs account for top deals

Everyone likes a bargain – including private equity investment firms. And that explains several of the biggest fourth-quarter catalog mergers and acquisitions. “The three largest transactions of the quarter were from private equity investment firms on the business-to-business side,” says Harry Chevan, a principal with New York investment bank Gruppo, Levey, and Co. “There’s still a significant amount of value associated by investors in the business-to-business sector.”

Most catalog companies have market capitalizations of far less than $1 billion. For investors interested in building a direct marketing platform – perhaps to use for expansion into e-commerce – this makes acquiring fulfillment and customer service infrastructure and expertise cheaper and easier than trying to build it from scratch. “And many private equity investors believe that catalogs can provide the platform to sell online,” Chevan notes.

When San Francisco-based Behrman Capital bought out business forms and greeting cards cataloger Executive Greetings in October, it announced that the $110 million cataloger would serve as a platform for growth. According to Lee Bracken, CEO of New Hartford, CT-based Executive Greetings, “Behrman wants to focus on leveraging Executive’s strength as a direct marketing company by leveraging the cost structure and fulfillment side of the business.”

Investment group Freeman Spogli & Co. is taking a similar tack with $118 million Medical Arts Press, of which it purchased a 70% stake in November. Minneapolis-based Medical Arts Press makes, distributes, and sells office products and supplies to healthcare professionals through catalogs and targeted mailings. “We’ll bring added value in the form of capital initiatives, such as expanding Medical Arts’ Website and making further acquisitions,” says Mark Doran, a general partner of Freeman Spogli, which has offices in New York and Los Angeles.

Freeman Spogli also led a group of investors in buying out Norwalk, CT-based computer cataloger Micro Warehouse in December. Under the terms of the agreement, Micro Warehouse’s shareholders will receive $19 in cash for each share of the company they own, valuing the transaction at $725 million.

“Business-to-business has been a sector we’ve always been interested in,” Doran says. “B-to-b has higher growth rates than consumer catalogs and has always been an efficient means of serving the customer.”

On the consumer side…

While the Executive Greetings, Medical Arts Press, and Micro Warehouse deals were the three largest catalog transactions of the quarter, several deals on the consumer side were just as high-profile. For instance, online behemoth Amazon.com made its first forays into print cataloging with its acquisitions of Grand Forks, ND-based hardware cataloger Tool Crib of the North and Herndon, VA-based Back to Basics Toys.

“Tool Crib had the largest online selection in a category that lends itself to online shopping,” says Bill Curry, spokesman for the Seattle-based Amazon.com. Curry also points to the fact that Tool Crib is information-intensive and has more brands than any store carries. As for Back to Basics, it “had developed an incredible line of classic toys. In both cases, we elected to acquire them rather than try to develop similar offerings.”

Then there was the fire sale at bankrupt Genesis Direct, also known as Proteam.com. In early December, wellness products cataloger Dr. Leonard’s Healthcare Corp. bought the assets of Genesis’s Carol Wright Gifts catalog, including the inventory and lists, for $4 million. Then Stamford, CT-based GE Private Placement Partners II acquired the remaining assets of Genesis Direct – including gifts catalog Edge Co. and several Websites and titles selling licensed sports gear – for $10.7 million.

A somewhat more glamorous deal occurred in October, when cosmetics giant Estee Lauder Cos. acquired London-based Jo Malone Ltd., a cataloger/retailer of skin care and fragrance products. Malone will continue as chairman, remaining in London, and will be responsible for the U.K. business and worldwide brand positioning.