MERGERS AND ACQUISITIONS: Few first-quarter deals

Are investors, dot.coms still interested in catalogs?

Despite widespread and growing interest in catalogers from pure-play Web marketers and private equity investors, only eight catalog industry transactions occurred in the first quarter of this year. This compares to a total of 19 catalog industry deals completed in January, February, and March of 1999.

“Part of our strategy is to grow through acquisition and I’ve noticed very few deals this quarter,” says Jack Rosenfeld, president of Medfield, MA-based cataloger Potpourri Collections, which mails the Potpourri, Counted Cross Stitch and Back in the Saddle catalogs. “I can’t really put my finger on why.” But Rosenfeld predicts more catalog deals in the coming months, because of the impending paper and postage increases.

Industry watchers say that the sparse activity doesn’t mean the interest in catalogs is waning among dot.coms and investors. According to Harry Chevan, a principal with New York-based investment banker Gruppo, Levey & Co., fewer deals may mean that companies “are still digesting earlier acquisitions or perhaps they’re waiting to see the impact the Internet has on direct marketing.”

Starting about a year ago, more Web marketers began to acquire print catalogers to bolster their own back-end infrastructure and customer service capabilities. In April 1999, for instance, pet products site Petjungle.com bought pet product catalog supplier Mason Distributors; and in November, Web bookseller behemoth Amazon.com acquired tool cataloger Tool Crib of the North.

This trend, while not huge yet, continues in the first quarter of 2000. In January, San Francisco-based Web marketer Petopia.com bought In The Company of Dogs, an upscale gifts catalog for dog lovers (the transaction price was not disclosed).

Petopia.com gains access to In the Company of Dogs’ fulfillment and mail order expertise, in addition to its lifestyle offerings, such as home furnishings and apparel, to augment its collection of pet care products.

In the Company of Dogs, in turn, benefits from Petopia.com’s broader customer base, as well as additional distribution channels – such as television. Petopia.com formed an alliance with TV network ValueVision to produce a weekly series for Value Vision’s Snap TV network, of which NBC television network is a minority owner. “The show offers cross-promotional opportunities for selling apparel from In the Company of Dogs,” says Petopia.com spokesman Donnelle Koselka.

As for M&A deals emanating from the more traditional catalog ranks, Minnetonka, MN-based general merchant Fingerhut, part of $15.6 billion Federated Department Stores, is continuing to seek ways to boost its already considerable multichannel presence. In January, Fingerhut purchased Hispanic marketer Empire Direct to enhance its presence inthe growing Hispanic market. Fingerhut will use Empire Direct’s 1 million-plus-name customer base to broaden its reach to Hispanic buyers, says executive vice president Michael Sherman. Then in March, Fingerhut purchased $6.75 million in assets from Teaneck, NJ-based StyleSite Marketing, which includes the Lew Magram and Brownstone Studio catalogs, which filed for bankruptcy Chapter 11 protection in January. “The books strategically fit with our Arizona Mail Order and Bedford Fair catalogs,” Sherman says.

On the international front, French retail giant Pinault-Printemps-Redoute (PPR), the parent of New York-based women’s apparel cataloger Brylane, acquired $147 million Surcouf, Europe’s largest computer store, in a deal worth $47 million.

PPR intends to integrate Surcouf with its retailing arm that also sells electronic goods and computing hardware and software. PPR already has a sizable computer retailing business through its book and music chain.

Acquiring expertise

But it’s not only Web and multichannel marketers that are attracted to acquiring traditional catalogs. Private equity firms are also increasingly looking to get in on the catalog action. According to Chevan, private investors value print catalogers because they already possess order fulfillment and customer service capabilities – something the dot.coms have yet to perfect. And investors view catalogs as the perfect platform for expansion online, or for further acquisitions. (See “Private Money,” March 15 issue.)

New York-based investment group Wand Partners in January added to its stable of catalog holdings by acquiring an $8 million interest in Phoenix, AZ-based co-op cataloger SkyMall. According to Wand’s president Mal Appelbaum, Wand was attracted to SkyMall’s recent $15 million investment in online catalog technology and customer interaction capabilities. Those investments should strengthen SkyMall’s ability to assist other Wand catalogs, such as food and gifts title The Popcorn Factory, and games book Bits & Pieces, in going online. While best known for its inflight catalogs, 37% of SkyMall’s revenues are generated online.

Also in January, Los Angeles-based private equity firm Brentwood Associates purchased an undisclosed amount in Omaha, NE-based gifts and novelties cataloger Oriental Trading. Calls to both companies were not returned by press time, but Oriental Trading Terry Watanabe is expected to remain president

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