Mergers and Acquisitions: Quality Rather Than Quantity

Nineteen industry mergers and acquisitions were consummated during the first quarter of the year. That’s just slightly more than half as many as were completed during the first quarter of last year. Yet observers insist that the M&A market for catalogers is stronger now than it has been during the past 18 months. What gives?

It’s a matter of quality vs. quantity. Last year, with the exception of Corporate Express’s acquisition of U.S. Office Products Co. for $250 million, the transactions were small ones. And the deals often involving the snatching up of dead or bankrupt companies at fire-sale prices.

For instance, manufacturer Schroeder & Tremayne snapped up cataloger/retailer Garden Botanika for a scant $1.3 million; the assets of defunct Garden.com were sold to Walmart and seeds cataloger Burpee for $4.4 million. Even U.S. Office Products had been in Chapter 11 when it was purchased.

But many of this year’s deals are healthier ones. For instance, in March private equity investor Cortec Group agreed to purchase Edison, NJ-based Dr. Leonard’s Healthcare Group, which mails the Dr. Leonard’s and Carol Wright Gifts catalogs, for about $200 million. That sum, says Craig Battle, managing director at Princeton, NJ-based investment bank Tucker Capital, shows “that good properties can still get high valuations.”

Battle is confident that catalog dealmaking will accelerate throughout the rest of the year. The domino effect holds true when it comes to M&A, he says: “You’ll begin to see more and more deals open up as some premier catalog properties are on the market.”

CATALOG AGE SPOTLIGHT ON FIRST-QUARTER DEALS

Sur La Table Feasts on Funding

When: February

Seattle-based kitchen products cataloger/ retailer Sur La Table completed a $14 million round of financing, with funds raised by private investment firm Freeman Spogli and Co. and the Behnke family, which bought Sur La Table in 1995. The company will use some of the funds to open five more stores this year and up to 10 stores in 2003.

The skinny: Sur La Table will also invest in its Website, sales of which grew 40% in 2001 without major funding.

Sandy Point Enters New Market with Work ‘n Gear

When: March

Men’s apparel cataloger/retailer Casual Male Corp., which has been operating under Chapter 11 bankruptcy protection since May 2001, agreed on March 13 to sell its Work ‘n Gear catalog/retail business to footwear manufacturer Sandy Point. Work ‘n Gear sells uniforms and other clothing for workers in the hospitality, healthcare, and industrial industries, a market Sandy Point was looking to enter.

Under the terms of the agreement, the $40 million Sandy Point will employ all of Work ‘n Gear’s retail employees and at least 70% of the Work ‘n Gear staff at the Canton, MA-based headquarters. Casual Male agreed to provide transition services to Sandy Point for up to six months after the transaction is complete.

The skinny: Casual Male’s remaining assets, including its eponymous catalog, were bought by retailer Designs in May (see “Casual Male Sold to Designs” on page 15).

Star Struck Sports New Properties

When: January

Bethel, CT-based cataloger Star Struck, which sells licensed sports apparel and accessories, acquired the sports-related assets of ProTeam from Stamford, CT-based GE Capital. Terms of the deal were not disclosed.

Formerly known as Genesis Direct, ProTeam had at one point consisted of a stable of consumer titles, including gifts catalogers The Edge Co. and Carol Wright. The specialty sports catalogs acquired by Star Struck included Manny’s Baseball Land, Hot Off the Ice, From the Sidelines, Nothin’ but Hoops, Soccer Madness, and Redline, none of which had mailed in more than a year.

The skinny: Rather than relaunch the ProTeam catalogs, Star Struck is selling some of their merchandise in its own catalog, now named Star Struck/ ProTeam. The first edition of the bulked-up catalog, which mailed to names from ProTeam’s house file as well as to Star Struck customers, dropped in April.

800.com Calls It a Day

When: February

Portland, OR-based consumer electronics marketer 800.com ceased operations on Feb. 28 and sold its key assets to consumer electronics retailer Circuit City Stores. A former Internet pure-play that subsequently launched a print catalog, 800.com said that the economy made it impossible for independent dot-coms to survive.

The skinny: Multichannel marketing strategies matter. In discussing the future of online marketers that lack a significant offline presence, Forrester research analyst Carrie Johnson was quoted as saying, “If 800.com couldn’t do it, not many could.”

NextMonet’s Pretty Financial Picture

When: February

San Francisco-based fine arts cataloger NextMonet announced the completion of a multimillion-dollar round of private financing led by Fostoria Corp. and Dauk/Wagner Investments.

The skinny: The infusion of funds will help NextMonet launch a wholesale division, which the marketer plans to use to sell merchandise to art galleries and retailers.

FIRST-QUARTER 2002 CATALOG INDUSTRY TRANSACTIONS
Company Market segment Buyer/investor Investment form Est. price (in millions)
JANUARY ProTeam Sports apparel Star Struck Acq. of assets N/A
Performance Diver Sports equipment Divers Direct Acq. of assets N/A
NKS Kabel Systeme GmbH Telecommunications Black Box Corp. Merger N/A
Telefuture Communications Telecommunications Black Box Corp. Merger N/A
FEBRUARY Sur La Table Kitchenware Freeman Spogli and Co. Equity investment $14.0
NextMonet Fine arts Fostoria Corp.; Dauk/Wagner Investments Equity investment N/A
800.com Consumer electronics Circuit City Acq. of assets N/A
TheKnot.com Wedding planning May Department Stores Minority investment $5.0
Promotions.com Marketing iVillage Acq. of assets $13.3
Switchouse.com Auction platform Amazon.com Acq. of assets N/A
MARCH Eckler Industries Automotive aftermarket Harbour Group Acq. of assets N/A
Dr. Leonard’s Healthcare Health and home care Cortec Group Acq. of assets $200.0
Reiman Publications Publishing Reader’s Digest Association Acq. of assets $760.0
Krane Holdings Home maintenance Thane International Stock purchase N/A
Work ‘n Gear Institutional apparel Sandy Point Acq. of assets N/A
iGo Computer supplies Mobility Electronics Acq. of assets $8.4
MoreDirect E-procurement PC Connection Acq. of assets $21.0
FTD.com Floral products FTD (IOS Brands Corp.) Merger N/A
Site59.com Travel Travelocity.com Acq. of assets $43.0
Source: Tucker Capital, compiled from public information and other nonconfidential sources

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