Not Much M&A for the First Quarter

WITH JUST SIX MULTICHANNEL CATALOG TRANSACTIONS, the first quarter of 2010 was unusually slow. That’s half as many deals compared to the first quarter last year — when the economy was worse.

While the overall M&A market has gained good momentum, total volume remained modest, says David Solomon, co-CEO of investment firm Lazard Middle Market. “We’ve seen improvement in lending and stabilization of company performance, but there appears to be great variability in company growth and profitability from title to title, making it difficult to generalize,” he explains.

Some catalogers have successfully migrated a large proportion of their business to the Internet, Solomon says, which tends to be a much faster-growing channel. “The larger and more sophisticated catalogers have figured out how to mitigate higher postage costs by finding every possible marketing efficiency. These businesses are performing reasonably well and are increasingly attractive properties at higher multiples.”

But other catalogers, he adds, have shrunk their companies in the face of economic pressures and higher costs. “Some of these companies have put themselves on the block because they don’t see a viable standalone strategy, but are not fetching high purchase price multiples,” Solomon says.

“The continued shift to the Internet and an improving economy would support a recovery in M&A activity in the sector because sellers don’t typically elect to sell when their recent performance has been disappointing he adds.”

Strategic moves

In reviewing the deals from the first quarter, two stand out because they involve The Thompson Group. The Tampa, FL-based multititle mailer in February sold its women’s apparel catalog Casual Living USA to private equity firm Monomoy Capital. Monomoy plans to consolidate Casual Living into its $225 million Boston Apparel Group platform, a West Bridgewater, MA-based catalog and Internet retailer of women’s value-priced apparel and accessories.

“Casual Living has a similar — but not identical — moderate income demographic, selling similar value-priced women’s apparel,” Solomon says. “The titles have differentiated positioning and product mix, and allow Boston Apparel to achieve broader market share,” while being similar enough to allow for cross promotion.

What’s more, the larger scale that will come from a consolidated back-end typically allows for some significant back-end savings, “which should ultimately bring down per- order fulfillment costs,” Solomon says. “Since marketing spends on circulation and paid search are usually calibrated to break even in some time period, any reduction in back-end costs allows more dollars to be diverted into marketing.”

Thompson in April sold its domestics title Linen Source to multititle mailer Orchard Brands: “This combination creates a stronger household offering for Orchard, which has traditionally been very deep in apparel,” Solomon says. “The timing is excellent, just as housing-related products should be coming out of the doldrums.”

Then there’s cosmetics giant Avon acquiring Liz Earle Co., a natural skin products direct marketer and wholesaler. In order to continue worldwide growth in diverse income segments, “beauty product companies have found the need for multiple brands that target a variety of incomes with differentiated merchandise positioning,” Solomon says. The acquisition also shows that “direct-selling companies are also embracing e-commerce, catalog and DRTV,” he says.


Company Market segment Buyer/investor Investment form Est. price (in millions)
FEB. Kace
Casual Living USA
PC manufacturers
Women’s apparel
Vitamins, supplements
Monomoy Capital Partners
Great Hill Partners
Equity Investment
MAR. Bachrach
Linen Source
Sport Supply Group
Liz Earle Beauty Co.
Men’s apparel
Home goods
Sports equipment
Skincare products
B&B Bachrach
Orchard Brands
ONCAP Management Partners
Avon Products

Source: MCM

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