Mergers and Acquisitions: Big Deals, Small Deals

Sep 01, 2002 9:30 PM  By

A cursory glance at the mergers and acquisitions conducted during the second quarter reveals several boffo catalog transactions: Sears, Roebuck and Co.’s $1.9 billion purchase of Lands’ End, Kennametal’s $170 million acquisition of Milacron’s overseas metal-cutting division, and Riverside Co.’s purchase of J.C. Whitney & Co.

But a closer look reveals a number of deals involving smaller, and in some cases faltering, properties. For instance, Wand Partners sold its Popcorn Factory title to 1-800-Flowers.com for a modest $12.2 million, and Ritz Interactive most likely was able to acquire the struggling CameraWorld.com for a bargain price.

And while Federated Department Stores’ sale of Fingerhut to FAC Acquisition (headed by former Fingerhut president Ted Deikel and wholesaler Tom Petters) was estimated at $500 million, the Fingerhut catalog has been dormant for months, and at press time FAC was uncertain whether the general merchandise title would be revived, albeit on a far smaller scale, or whether it would use the Fingerhut real estate and inventory for Deikel’s and Petters’ other businesses.

“Many of these catalog properties were listing badly and were no longer a vehicle for their owners to build shareholder value,” says Craig Battle, managing partner of Princeton, NJ-based Tucker Capital, which compiles the quarterly list of industry transactions for Catalog Age.

“But there were a few beacons of promise,” Battle adds, “such as J.C. Whitney and Lands’ End — examples that a premier brand can still get attention. If you can create something special and dominate a category, you can break through the four to six times EBITDA range that characterizes today’s historically low multiples.”

CATALOG AGE SPOTLIGHT ON SECOND-QUARTER DEALS

San Francisco Music Box Parent Buys Museum Co.

When: April

The deal: New York-based private investment firm Kier Group Holdings, which acquired The San Francisco Music Box Co. from Venator last fall, bought Fairfield, NJ-based The Museum Co. out of Chapter 11 bankruptcy. Kier is now seeking to combine the operations of the two cataloger/retailers as a way of cutting costs and improving margins.

The Museum Co., like its gifts marketer stablemate, is also paring down its merchandise offerings, says president Joel Kier. The company sells reproductions of paintings, sculptures, and other items that appear in leading art museums, as well as jewelry, home decor, books, CDs, videos, and toys.

The skinny: Could more deals be in the works? It sure sounds that way. “The two critical pillars of our strategy are to focus on gifts and home furnishings and to seek out and identify other possible acquisitions in the gift industry,” Kier says, although he won’t go into specifics.

PC Mall Acquires Pair

When: April and May

The deals: Torrance, CA-based PC Mall had a busy quarter. First the computer reseller acquired virtually all of the assets of fellow computer cataloger Pacific Business Systems (PBS). The $84 million PBS produces the ClubMac catalog. “With the majority of their current sales derived from their outbound direct marketing sales force” PC Mall chairman/president/CEO Frank Khulusi said in a statement, “the PBS acquisition is aligned with the focal point of PC Mall’s business strategy.”

One month later, PC Mall acquired $89 million technology solutions provider Wareforce, which had been operating under Chapter 11 bankruptcy protection. Under the terms of the bankruptcy proceeding, PC Mall will pay approximately $10.6 million to Wareforce’s creditors and receive trade accounts receivable and inventory worth $10.9 million, as well as all fixed and intangible assets.

The skinny: Integrating a new business is always a challenge, but at least PBS and PC Mall use the same enterprise software. That should simplify matters and enable PC Mall to reap the benefits of synergy sooner rather than later.

Kennametal Sells One, Buys One

When: April and May

The deals: Latrobe, PA-based industrial conglomerate Kennametal and its J&L Industrial Supply metalworking tools subsidiary sold Cleveland-based metalworking tools distributor Strong Tool to entrepreneur Cedric D. Beckett. J&L, which bought Strong Tool in 1998, sold the Strong operation so that it could focus on catalog sales distribution.

A month after it sold Strong, Kennametal acquired the European and Indian metalcutting-tool businesses of manufacturer Milacron for approximately $170 million. The two units, Widia and Werko, last year had a combined $240 million in sales.

The skinny: To goose sales, J&L has improved its service offerings, providing next-day delivery at no extra cost and same-day shipping for orders placed by 8 p.m. Eastern.

Private Equity Firm Snaps Up J.C. Whitney

When: June

The deal: Leveraged buyout firm Riverside Co. purchased Chicago-based auto parts cataloger J.C. Whitney & Co. for an undisclosed sum. J.C. Whitney has estimated annual sales of more than $200 million. “We were looking for a company that was a leader in its field with a strong brand name and management team,” Christine Croissant, director of communications for Riverside, told Catalog Age last month.

The skinny: The deal marks Riverside’s third foray into the catalog business. In May it acquired knitting and crocheting cataloger Patternworks; in June 2000, Riverside purchased quilting fabric cataloger Keepsake Quilting.

SECOND-QUARTER 2002 CATALOG INDUSTRY TRANSACTIONS
Company Market segment Buyer/investor Investment form Est. price (in millions)
APRIL Museum Co. Gifts Kier Group Holdings Acq. of assets $12.8
Ebeling & Reuss Gifts Strathmore Corp. Acq. of assets N/A
Celebration Fantastic Gifts Stumps Acq. of assets N.A
Clotilde’s Sewing Notions Crafts Dynamic Resource Group Acq. of assets N/A
Pacific Business Systems Computers PC Mall Acq. of assets N/A
Strong Tool Co. (div. of Kennametal) Tools Cedric Beckett Acq. of assets N/A
Valu-Bilt Farm equipment Alamo Group Acq. of assets $7.5
Angelica Image Apparel Institutional apparel Medline Industries Acq. of assets N/A
MAY The Popcorn Factory Food 1-800-Flowers.com Stock purchase $12.2
Lands’ End Apparel and home goods Sears, Roebuck and Co. Acq. of assets $1,900.0
Nordstrom.com Apparel Nordstrom Buyback $70.0
Milacron (European metalworking bus.) Tools Kennametal Acq. of assets $170.0
Student Advantage Events and promotions Alloy Acq. of assets $6.5
Wareforce Technology PC Mall Acq. of assets N/A
CameraWorld.com Photographic equipment Ritz Interactive Acq. of assets N/A
JUNE Heavenly Ham Food HoneyBaked Ham of Georgia Acq. of assets N/A
Fingerhut General merchandise FAC Acquisition Acq. of assets $500.0
J.C. Whitney & Co. Auto parts Riverside Co. Acq. of assets N/A
Educators Publishing Service Education Delta Education Acq. of assets N/A
SIRIE Telecommunications Black Box Corp. Acq. of assets N/A
Source: Tucker Capital. compiled from public information and other nonconfidential sources