Lack of serial acquirers accounts for drop in third-quarter activity
Third-quarter merger and acquisition (M&A) activity among catalogers fell 25%, to 24 deals this year from 32 transactions last year.
Normally, such a significant drop-off might suggest a slump within the catalog industry, but according to Harry Chevan, senior vice president at New York investment bank Gruppo, Levey, and Co., that’s not the case here. Last year five catalog companies – medical and dental supplies distributor Henry Schein, business-to-business educational supplier School Specialty, computer networking supplies cataloger Black Box, nutritional supplements cataloger/ retailer NBTY, and serial acquirer Genesis Direct – accounted for nearly half of the third-quarter deals, with three acquisitions each. This year, only gardening and gifts cataloger Foster & Gallagher bought more than one property, so while the number of deals has declined, the number of companies involved in transactions has actually increased slightly.
“The market is still ripe for mergers and acquisitions,” Chevan says, “particularly in the online arena.”
Indeed, the trend of retailers and Web marketers buying catalogers – and their existing back-ends – rather than building their own operations from the ground up continues. Last quarter saw retailer Guitar Center purchase cataloger Musician’s Friend, and online marketer Cybershop.com acquire the parent company of gifts cataloger Tools for Living; this quarter, online-only pet supplies marketer PetQuarters.com purchased $15 million Hazelton, PA-based pet products cataloger Humboldt Industries for $9.2 million. According to Chevan, PetQuarters.com was more interested in Humboldt’s call center and distribution facilities than in its two print catalogs, Home Pet Shop and The Dog’s Outfitter.
Just as virtual marketers want to acquire the back-end expertise of catalogers, some catalog companies are eager to obtain an online boost. That’s the reasoning behind general merchandise cataloger Fingerhut Cos.’ August purchase of an additional 8.2% of Handtech.com, a three-year-old Austin, TX-based marketer of Internet products and services. Fingerhut, which had bought 19.9% of Handtech in February, now owns 28.1% of the company and has warrants to acquire up to 48.1% in all. Handtech gets a major boost by being able to market to Fingerhut’s 31 million-name database and to the 59 million-name database of Fingerhut’s parent, Federated Department Stores, while “we use Handtech as an upsell with our own offerings,” says Fingerhut CEO Will Lansing. For instance, when selling computers, Fingerhut now offers Internet service from Handtech as well.
Catalogers buying catalogers
Of course, plenty of catalogers continue to acquire other print books. For instance, in July, Peoria, IL-based Foster & Gallagher bought two seed catalogs, Yankton, SD-based Gurney’s Seed & Nursery and Shenandoah, IA-based Henry Field’s Seed & Nursery The $480 million F&G’s other horticultural catalogs include Breck’s and Stark Brothers.
At the same time F&G was buying titles, it was selling The Popcorn Factory, a catalog selling food gifts and flowers, to New York-based Wand Partners, a private equity investment firm. Wand Partners, which owns gifts cataloger The Paragon and mobile accessories cataloger iGo, plans to use Popcorn Factory’s house file of 178,000 names as “a platform for a business-to-business food gifts company,” says Wand president Mal Appelbaum.
Mankato, MN-based Taylor Corp. also grew its catalog stable via acquisition. In August, it bought Artistic Direct, a cataloger of personalized stationery and gifts. Taylor, which owns 75 other companies, primarily stationery manufacturers and distributors, entered the catalog fray in October 1998 by purchasing stationery title Current Social Expressions and specialty paper book Paper Direct from Deluxe Corp.