Mergers and Acquisitions: No Big Spenders

First-quarter merger and acquisition (M&A) activity among catalogers slowed 26% this year, as companies concentrated on absorbing earlier transactions and integrating them into the fold. Only 17 transactions occurred during the first quarter of 1998, according to New York investment banking firm Gruppo, Levey & Capell, compared with 23 during last year’s first quarter.

Among business-to business mailers, Latrobe, PA-based JLK Direct had its hand in three of the eight b-to-b deals transacted during the first quarter. The $316.2 million cataloger of industrial tools and supplies kicked off 1998 by acquiring $23 million Production Tools Sales in January. In March, JLK was busy again, buying $17 million ATS Industrial Supply, $9 million Dalworth Tool and Supply, and $64 million Strong Tool Co.

Mike Mussog, chief financial officer of JLK Direct, says the company’s strategy is a simple one. “Our goal is to have a physical presence in all 50 industrial metal-cutting regional markets in the next three to five years.”

Representing the quarter’s only merger, $41.9 million Seattle-based PhotoDisc, a b-to-b cataloger of stock photography, merged with $101 million Getty Communications, an international provider of visual content. The deal gives PhotoDisc access to London-based Getty’s European distribution channels, while Getty benefits from PhotoDisc’s online expertise. For the first quarter of 1998, PhotoDisc’s Website yielded $4.2 million in sales-one third of the quarter’s total revenue.

“Our primary focus in 1998 will be to combine the PhotoDisc and Getty Web teams and accelerate the development of electronic distribution of our branded product lines,” cochairmen Mark Getty and Mark Torrance said in a statement.

On the consumer side, March saw $27 billion retailer Dayton Hudson Corp. acquire $190 million Rivertown Trading Co., which publishes such gifts catalogs as Wired and Signals, from Minnesota Communications Group for $120 million. (See “Rivertown sold to Dayton Hudson,” May issue.)

Analysts believe that Dayton Hudson is interested less in Rivertown’s catalogs than in using its infrastructure to establish an online presence. For retailers, owning a cataloger means that fulfillment and customer service functions-key to setting up shop online-are already in place. “Rivertown Trading’s telephone order-taking and distribution systems will enable Dayton Hudson to build an Internet retailing business,” says Andrew Calimano, an analyst with Gruppo, Levey & Capell. He compares the transaction to Home Depot’s March 1997 acquisition of business cataloger Maintenance Warehouse/America Corp., whose fulfillment and service capabilities gave the home goods retail giant entry into direct marketing.

Lying low Not every cataloger was as busy as JLK Direct or Dayton Hudson this past quarter, however. Notable by its lack of activity was serial acquirer Henry Schein, a b-to-b cataloger of medical, dental, and veterinary supplies.The $1.52 billion Henry Schein, which had orchestrated four deals during the first quarter of last year, let the most recent quarter go by without an acquisition. Calimano says that the cataloger is most likely slowing its growth somewhat to concentrate on consolidating its acquisitions.

Similarly, Secaucus, NJ-based Genesis Direct, which had acquired three catalogs during the first quarter of 1997, satisfied itself this time around with only one acquisition. The catalog conglomerate added to its stable of sports-related titles Sportime International, which sells sports equipment for physical education programs in schools and institutions.

But with the second quarter already producing the April acquisitions of office supplies catalog Quill Corp. by superstore chain Staples and Biobottoms by Genesis Direct, Calimano doesn’t expect the lull in M&A activity to last long. And now that Genesis Direct is going public (the completion of the public offering was slated for May), the holding company may use its investors’ money to go on a spending spree, as JLK Direct did after going public last year.

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