Harry & David a Good Fit for 1-800-Flowers

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Industry experts said they were in favor of 1-800-Flowers acquiring specialty gift retailer Harry & David.  1-800-Flowers acquired Harry & David for $142.5 million.

The acquisition includes Harry & David’s brands and websites as well as its headquarters, manufacturing and distribution facilities, its orchards in Oregon, a warehouse and distribution facility in Ohio and 47 of Harry & David’s retailer stores located though out the country.

Stuart Rose, managing director for Tully & Holland Inc., said 1-800-Flowers has been an acquisitive company over the years and it is responding to FTD acquiring Liberty Interactive Corporation’s  floral and gifting business Provide Commerce this year.

Rose said he thought 1-800-Flowers is a good fit.  Rose said Harry & David didn’t do well during the economic crisis of 2008 along with sales going from $561 million in 2007 to $381 million in 2013 through March 2014.

Harry & David filed for bankruptcy in March 2011, later that year the U.S. Federal Court approved Harry & David’s Chapter 11 reorganization plan, allowing them to emerge from bankruptcy.

“They never really recovered, they are doing so-so right now, they are very seasonal,” said Rose. “It’s a tough business to grow, not much making them special as they used to be. 1-800-Flowers can afford such a seasonal business.”

Rose said he thinks this acquisition will bring some shakeups, but not as much as you expect.

“I think this is a way for the current ownership to be done with an investment that didn’t do so well,” said Rose.

Rose said he could see Harry & David being less seasonal and expand to include Mother’s Day and Valentine’s Day.

“I could see cross promotions across the companies,” said Rose.  “1-800-Flowers are a good operator and what they need to do is make Harry & David special again, because they have lost their luster.”

Rose said 1-800-Flowers are for personal gifts mostly, and Harry & David is more for business gift giving.

“Harry & David has steadily grown its top and bottom-line for the past several years, with revenue reaching nearly $400 million in its most recent reported year,” said Jim McCann, CEO of 1-800-Flowers.com Inc. in a press release. “This combination will increase our total annual revenue to more than $1 billion and add to our EBITDA, EPS and Free Cash Flow.”

Harry & David’s current senior management team will remain with the business.  The acquisition includes some leveragable assets including: A large customer database consisting of both consumers and corporate accounts; A website with significant growing customer traffic; A collection of proprietary gift products and brands that engender strong customer loyalty; A strong operational infrastructure consisting of geographically dispersed manufacturing, warehousing and distribution facilities.

“I am confident that by joining forces, we will benefit by gaining access to a robust infrastructure,  distribution network,  global presence and enhanced resources, which will enable us to continue to cultivate and grow the one-of-a-kind Harry & David brand,” said Craig Johnson, CEO of Harry & David.

Abe Garver, managing director of BG Strategic Advisors said the specifics of the transactions will be described later in a purchase agreement; all the facts have not been made public yet.

Garver cited the “Moving the e-Markets’ Valuation Index” explaining that on average each of the publically traded ecommerce companies are trading at 16 times its earnings, however 1-800-Flowers is trading at 8.4.

“I like it, 1-800-Flowers have been looking for an add-on acquisition, this is more than an add-on acquisition,  this is a transformative  acquisition, they are buying something bigger than them,” said Garver.

“Credit is due to whoever brought this deal idea,” said Garver.  “It never crossed my mind, in hindsight I am happy it was proposed, I like it.”

Garver said both companies are profitable, putting them together makes the combined company worth more.

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