Quality Vs. Quantity

Dec 01, 2003 10:30 PM  By

Only 13 mergers and acquisitions were transacted during the third quarter, compared with 22 deals in the third quarter of last year. But a number of the deals that did go down were significant ones: Boise Cascade Corp. buying OfficeMax for $1.15 billion, for instance, and Patterson Dental Co. acquiring AbilityOne Products Corp. for $575 million.

Other deals, such as CDW Corp.’s acquisition of the North American assets of rival Micro Warehouse, made big headlines for a relatively low cost. Many of these third-quarter deals were about “adding volume or product diversity at a very low risk,” notes Craig Battle, managing director of Princeton, NJ-based investment bank Tucker Alexander.

Battle maintains that catalogers looking to exit their businesses may still be unwilling to sell until the market picks up, unless it’s absolutely necessary for the company’s survival. Catalogers faced with the latter situation are responsible for the great deals available to potential acquirers.

Overall, however, multiples are still somewhat low, and Battle believes that most potential sellers are waiting for market conditions to improve. “Catalogers are still on the sidelines and waiting out some of the choppiness in the market,” he says.

CATALOG AGE’S DEALS OF THE THIRD QUARTER

Scholastic Dips Into Consumer Market

When: August

The facts: Children’s book and magazine publisher Scholastic has put its toes into the catalog market by acquiring $15 million cataloger Back to Basics Toys from Amazon.com for $4.75 million. Back to Basics continues to be run by the Ridgely, MD-based staff that produced the catalog under Amazon. New York-based Scholastic has no plans to turn the catalog into a continuity program, nor does it plan to turn any of its continuity programs into catalog operations.

The skinny: Amazon tried and failed to transition the catalog into an online model. The lone remaining Amazon print catalog is Tool Crib of the North.

Matrix Group Strengthens Its Teen Appeal

When: July

The facts: Safety Harbor, FL-based Matrix Group Ltd. purchased the intellectual property of The Catalog Group through a private foreclosure sale. The Catalog Group’s primary brand, The Female Athlete, sells athletic apparel to females ages 11-22 — as does Matrix’s Sweet & Powerful catalog. (Matrix also mails volleyball supplies titles Spike Nashbar and Volleyball Express and the WrestlingOne catalog.) For the Christmas season, Matrix Group president Louis Orloff says he’s incorporating Sweet & Powerful into The Female Athlete to boost response. And for the spring mailing, Matrix Group will enlarge The Female Athlete’s format, taking it from a slim-jim to a full-size book.

The skinny: The Female Athlete is performing in line with expectations so far, Orloff says. If by next year the book isn’t performing better, Matrix Group will position the title to go after women ages 28-45.

Vermont Teddy Bear Goes for Flower Power

When: September

The facts: Shelburne, VT-based Vermont Teddy Bear Co. paid Equity Resource Partners $3.7 million in cash and stock, along with the assumption of certain working capital liabilities, for fresh-flowers cataloger Calyx & Corolla. Vermont Teddy Bear will operate Calyx & Corolla out of its Shelburne headquarters, maintaining a satellite office in Vero Beach, FL, where Calyx had been based. In addition to its core business of manufacturing and marketing high-end gift teddy bears, Vermont Teddy Bear operates gourmet foods catalog TastyGram, which launched in October 2002, and gifts delivery business PajamaGram, started in April 2002.

The skinny: The new owner expects to promote Calyx & Corolla via direct response radio ads, the medium that successfully launched the Vermont Teddy Bear and TastyGram brands.

Broder Bros. Buys Another Rival

When: September

The facts: The Plymouth, MI-based business-to-business cataloger of imprintable sportswear purchased rival Alpha Shirt Co. from Cleveland-based private equity firm Linsalata Capital Partners. Broder expects to keep the Alpha Shirt brand separate, supporting it with its own catalog, Website, customer service, and sales force.

The skinny: During the past two years, Broder Bros. also acquired Full Line Distributors, Gulf Coast Sportswear, and T-Shirts & More.

Micro Warehouse No Longer Computes

When: September

The facts: CDW Corp. picked up its rival on the cheap. For $22 million, Vernon Hills, IL-based CDW gets Micro Warehouse’s roughly $940 million North American business, including its customer database along with $14 million in inventory, intellectual property, trademarks, and copyrights. Norwalk, CT-based Micro Warehouse retains its overseas business, which accounts for approximately $1 billion in revenue.

The skinny: With the CDW deal completed, Micro Warehouse, once one of the biggest names in the computer business, ceases to exist in the U.S. CDW will continue to mail the MacWarehouse catalog, however.

Boise Buys into Retail with OfficeMax

When: July

The facts: Through its Boise Office Solutions division, which includes the Reliable Office Products catalog, Boise, ID-based paper manufacturer/office supplies marketer Boise Cascade had direct sales of $2.76 billion last year. With the addition of the $4.77 billion OfficeMax, which had $480 million in direct sales last year, Boise will gain a new outlet — retail — for its paper products. Shaker Heights, OH-based OfficeMax has nearly 1,000 stores.

The skinny: The combined direct sales of Boise/OfficeMax are $3.1 billion — making it a close second to Office Depot/Viking Office Products in catalog sales of office supplies.

THIRD-QUARTER 2003 CATALOG INDUSTRY TRANSACTIONS

Company Market segment Buyer/investor Investment form Est. price (in millions)
JULY Don Sherwood Golf & Tennis World Golf equipment Golfsmith Acq. of assets N/A
OfficeMax Office supplies Boise Cascade Corp. Acq. of assets $1,150.00
Perbio Science AB Laboratory equipment Fisher Scientific International Majority investment $714.00
Barnes&Noble.com Books Barnes & Noble Acq. of assets $164.00
The Catalog Group (The Female Athlete) Sports apparel Matrix Group Ltd. Acq. of assets N/A
AUGUST Delia’s Teen apparel Alloy Acq. of assets $50.00
White House Women’s apparel Chico’s Acq. of assets $90.00
AbilityOne Products Corp. Rehabilitative supplies Patterson Dental Co. Acq. of assets $575.00
Back to Basics Toys Toys Scholastic Acq. of assets $4.75
Sonic Foundry Audio and video production software Sony Pictures Digital Acq. of assets $18.00
SEPT. Calyx & Corolla Fresh flowers Vermont Teddy Bear Co. Acq. of assets $3.70
Alpha Shirt Co. Imprintable sportswear Broder Bros. Acq. of assets N/A
Micro Warehouse (North America) Computers CDW Corp. Acq. of assets $22.00
Source: Tucker Alexander, compiled from public information and other nonconfidential sources