Multichannel Retailers Acquire, Divest at Brisk Pace

Now that multichannel retailing is well established, merger and acquisition activity is picking up markedly in the sector. According to Petsky Prunier LLC, an investment bank specializing in direct marketing deals, for the first nine months of 2005, M&As among marketing service, marketing technology, and multichannel marketer companies totaled 351 transactions and represented $38.5 billion in estimated transaction value. The nine-month transaction dollar volume is a record, up 66% from the same period last year. This period was also characterized by larger transactions: The median direct marketing industry transaction during year-to-date 2005 was $18.5 million, up 85% from $10 million during the same period in 2004.

Among multichannel marketers, the total estimated deal volume in the first nine months of this year was $16.5 billion, representing growth of approximately 85% over the year-ago period, and was especially driven by eBay’s $4.1 billion acquisition of Skype Technologies. In line with other sectors, the median deal size has grown, approximating $25.5 million.

Based upon the primary marketing channel, the interactive segment led marketer M&As, with 30 transactions. The catalog segment also experienced robust activity during the period, with 26 deals. Interactive segment deals accounted for four of the largest 10 multichannel marketer transactions, including another acquisition by eBay, comparison shopping engine Shopping.com. Two sizeable corporate divestitures occurred during the third quarter—Cendant finally sold its Marketing Services Division, a marketer of affinity programs in partnership with leading brands, to Apollo Advisors for $1.8 billion, and Sara Lee sold its Direct Selling Unit to Tupperware for more than $500 million.

Strategic buyers continued to dominate the multichannel marketing sector, transacting approximately 64% of the deals, including nine of the 10 largest transactions so far this year. This percentage, however, is down from 75% and 78% from the same periods in 2004 and 2003, respectively, as private equity groups continue to demonstrate their ability to win transactions. Potpourri Group, Vermont Teddy Bear, Specialty Catalog, and Bachrach Clothing are representative of large multichannel marketers that have been bought out by private equity groups this year.

For more information, contact Michael Petsky at (212) 842-6001 or [email protected].