Finance: M&A Fizzles in Fourth Quarter

Mar 01, 2011 10:30 PM  By

IF YOU THOUGHT INDUSTRY MERGERS AND ACQUISITIONS WOULD PICK UP IN THE FOURTH QUARTER OF 2010, THINK AGAIN. Multichannel Merchant reported a dismal four deals in this segment, compared to 14 for the same quarter in 2009. It’s even down from the five transactions that took place in the third quarter of 2010.

The biggest deal was Amazon.com spending $545 million to acquire Quidsi, the parent company of Diapers.com, in November. Quidsi also includes Soap.com, which launched this past July, and BeautyBar.com, a luxury beauty products site started in June.

But the most buzz from the quarter came from a company that wasn’t even involved in a deal — yet, anyway. Multititle mailer Orchard Brands grabbed all the attention after it went on the market in October, and then filed Chapter 11 bankruptcy protection in January.

David Solomon, co-CEO of investment firm Lazard Middle Market, explains that the catalog/multichannel industry was generally hit harder than most during the recession, and has been slower to recover. Lower spending by consumers through 2009 and early 2010 hurt the top line, and 12-month active customer counts declined for many, were flat for some, and were up for just a few.

But Solomon says he’s seeing improved performance from the stronger direct marketers.

“M&A activity usually increases when an industry is performing well, because seller value expectations are usually more in line with buyers’ views on value, and buyers are also more aggressive in pursuing acquisitions when their own performance is strong,” he says. “Generally speaking, there are high levels of purchasing power by strategic and financial buyers, and what the market needs is an increased supply of willing sellers.”

As for the actual deals, MSC Industrial, an MRO (maintenance, repair and operations) products supplier, acquired Rutland Tool. Rutland is a distributor of industrial tools to machine and metalworking shops, as well as maintenance and repair facilities focused on the western U.S.

“This acquisition appears to be geographically motivated,” Solomon says. “The MRO business requires same-day/next-day service to customers who could be in dire need of a critical part, so in order to expand geographically one must develop distribution centers in proximity to customers.”

Solomon says there should be cost savings opportunities as the two companies consolidate certain functions — such as fulfillment, catalog production and call centers.

Looking to expand its range of services, healthcare products and services cataloger MarketLab acquired Newmatic Medical, a manufacturer/distributor of MRI products, from wheelchairs, stretchers and lighting, to patient comfort devices, sanitary supplies, safety measures and interventional MRI supplies.

“Direct marketers are finding it increasingly expensive to acquire customers, and once you have them it is critical to sell more products to them to increase the lifetime value of the customer,” Solomon says.

MarketLab’s acquisition fits this theme, Solomon says, as it “picks up Newmatic’s strength in MRI accessories.” There should also be cost savings opportunities, as the two companies consolidate catalog production and call centers.

Meanwhile, Brady Corp. a Milwaukee-based manufacturer/marketer of industrial signage, security and safety products, acquired Australia-based identification and security products supplier ID Warehouse, which specializes in security identification and visitor management products.

Companies such as Brady, Solomon says, have established a strategy “to play on the international stage, and often find that acquisition is the fastest way to establish or build a beachhead and take advantage of local fulfillment and resources.”

THE FOURTH QUARTER BROUGHT JUST FOUR DEALS VS. 14 FOR THE PERIOD IN ’09

4Q 2010 CATALOG INDUSTRY TRANSACTIONS
Company Market segment Buyer/investor Investment form Est. price (in millions)
NOV. Rutland Tool & Supply Co. Industrial tools MSC Industrial Direct Acquisition $11.0
Newmatic Medical Healthcare products MarketLab Acquisition N/A
Quidsi Baby and personal care products Amazon.com Acquisition $545.0
DEC. ID Warehouse Identification and security products Brady Corp. Acquisition N/A