Deals on upswing in second quarter

It was a busy second quarter, with 19 deals completed, significantly more than the dozen finalized during the same period last year. Because the transactions covered all the bases, it’s difficult to pinpoint any specific trend. But Craig Battle, managing director of Princeton, NJ-based investment bank Tucker Alexander, which tracks merger and acquisition activity for Multichannel Merchant, says one thing is for certain: “You’re seeing a pickup in the acquisition pace.”

What’s more, Battle says, the quality of the deals is getting better. “There continues to be a bias toward the bigger deals, which is driven by the private equity guys. They are all over every deal over $100 million.”

J. Crew goes public

When: June The facts: New York-based apparel cataloger/retailer J. Crew Group began trading on the New York Stock Exchange on June 28. Its initial public offering of 18.8 million shares of common stock was priced at $20 per share. J. Crew had a strong fiscal 2005: Sales were $953 million, up 19% from $804 million in 2004. Direct sales rose 28%, to $254 million. What’s more, the company posted net income of $4 million, a turnaround from the $100 million loss ($50 million of which had resulted from financing of debt) reported the previous year. J. Crew expected to receive net proceeds of about $351.6 million from the offering and plans to use those funds — along with an additional $73.5 million from the private sale of common stock to the company’s largest shareholder, private equity firm Texas Pacific Group, and cash on hand of $8.4 million — to redeem the company’s preferred stock. The skinny: “This is a great financial engineering play in my view, buying back preferred stock with public money,” Battle says. “It remains to be seen whether the public made a good choice on this.”

Carlyle Group buys Oriental Trading Co.

When: June The facts: Washington-based private equity firm The Carlyle Group agreed to buy the majority of Oriental Trading Co., an Omaha, NE-based gifts and novelties cataloger, from Los Angeles-based Brentwood Associates. Terms of the transaction, scheduled to close in the third quarter, were not released, but published reports say the selling price was $1 billion. “The size and profitability of this company really blew me away,” Battle says. “They were making $85 million-$90 million a year.” The skinny: Brentwood will retain a “significant” minority stake — reported by Reuters to be 25% — in the company, which it purchased in 2000.

Sun Capital takes shine to Lillian Vernon

When: May The facts: Direct Holdings Worldwide sold White Plains, NY-based gifts and housewares cataloger Lillian Vernon Corp. to Boca Raton, FL-based investment firm Sun Capital Partners. Lillian Vernon has been privately held since Direct Holdings purchased it in July 2003. Its final sales numbers as a public company were $287.0 million, $259.6 million, and $238.0 million in fiscal 2001, 2002, and 2003 respectively. Corresponding losses for those years were $1.4 million, $9.1 million, and $18.6 million. “I’m not surprised the guys who owned Lillian Vernon finally gave up,” Battle says. The skinny: Lillian Vernon is already working on improving the catalogs. The first step: Getting rid of the logo with the image of a woman holding two shopping bags, which the company had unveiled in late 2004.

Company Market segment Buyer/investor Investment form Est. price (in millions)
APR. Fannie May Confections Brand Candies Acq. of assets $85.0
Home Decorators Collection Home decor Home Depot Acq. of assets $200.0
J&L Industrial Supply Industrial tools MSC Industrial Direct Co. Acq. of assets $349.5
MAY Fairfield Mint Die-cast collectibles Encore Cap./Buckingham Cap. Acq. of assets N/A
Hermes Trading Co. Musical instruments Guitar Center Acq. of assets N/A
Lillian Vernon Corp. Gifts and housewares Sun Capital Partners Acq. of assets N/A
Sportsman’s Guide Outdoor gear and sporting goods Redcats USA Acq. of assets $265.0 Jewelry Acq. of assets N/A
Allied Office Products Office products Office Depot Acq. of assets N/A
Safeco Industrial supplies Northern Safety Acq. of assets N/A
JUNE Dominion Saddlery Equestrian products Dover Saddlery Acq. of assets N/A
Eckler’s Enterprises Aftermarket auto parts Century Park Capital Partners Acq. of assets N/A
J. Crew Group Apparel and accessories Public IPO $425.0
Oriental Trading Co. Crafts and party supplies Carlyle Group Majority investment $1,000.0
Bluefly Apparel and accessories Maverick Cap./Prentice Cap. Stock purchase $50.0 Nutritional supplements and fitness Milestone Partners Majority investment N/A Wedding supplies The Knot Acq. of assets $58.0
Extra Measures Safe-T Products Educational products Learning Resources Acq. of assets N/A
Darby Group (three divisions) Medical and dental products Henry Schein Acq. of assets $51.5
Source: Tucker Alexander, compiled from public information and other nonconfidential sources