Another day, another acquisition: Private equity firm Reliant Equity Investors in March bought Westerly, RI-based Paragon Gifts Holdings, parent of gifts titles The Paragon and Bits and Pieces, from a group of private investors that included principal shareholders of New York-based Wand Partners. Reliant formed BlueSky Brands for the purposes of the acquisition, terms of which were not disclosed.
Sales figures were not disclosed either, but Paragon and Bits and Pieces are estimated to have annual revenue of more than $60 million. The Paragon has 669,000 12-month buyers; Bits and Pieces has 310,000 12-month buyers in the U.S. and 13,000 in the U.K.
Reliant has named Richard Hebert, an investor in BlueSky and a direct marketing veteran, as BlueSky’s CEO. Alan Segal, founder/president of Bits and Pieces, will serve as BlueSky’s executive vice president of merchandising. Paragon Gifts CEO Stephen Rowley will serve as an adviser and consultant to BlueSky.
“Our vision is to acquire, integrate, and grow a family of leading multichannel direct-to-consumer marketing companies focused on the sale of gifts and household products to the middle market,” Herbert said in a release.
This deal is yet another example of an equity house acquiring a platform catalog business, says Larry J. West, president of New York-based catalog intermediary West Cos., who, along with Jim Adams of Peterbrough, NH-based catalog intermediary and financial consultancy James C. Adams, advised Wand Partners in the deal.
West says that the Paragon and Bits and Pieces businesses are large enough to be a platform (at least $50 million in revenue) and have economies of scale in merchandise buying, catalog production, Website marketing, management, systems, and order processing. “This reflects favorably on our industry as an investment vehicle,” he says.
According to East Greenwich, RI-based catalog consultant Coy Clement, formerly president/CEO and board member of Paragon, the business has always been “consistently profitable” but its growth prospects had been “constrained” because its Westerly warehouse needed expansion. Last year Paragon approximately doubled its warehouse size in time for the holidays. “The added capacity helped take the brakes off growth,” Clement says.
The rise of the EIR
According to West, the Paragon deal is emblematic of what’s known as an executive-in-residence (EIR) driven acquisition, in which the acquiring entity, partners with and installs a seasoned catalog executive to run the purchased business. Paragon’s Hebert, who had held a senior management position in direct marketer MBI, had worked with Reliant to help complete the Paragon acquisition.
Other examples of EIR-driven deals include Cleveland-based Linsalata Capital’s purchase of multititle mailer Potpourri Group, headed by Jack Rosenfeld, in late 2002, and the acquisition of Chef’s Catalog and installation of Jon Medved as CEO by Pikes Peak Direct Marketing, a company formed by San Francisco-based equity investor JH Partners, this past November.
Senior debt financing for the Paragon deal was provided by Sovereign Bank New England, a subsidiary of Sovereign Bancorp of Philadelphia; subordinated debt was provided by Smith Whiley & Company of Hartford, CT.