Valuations & Acquisitions: Know What to Ask

By Larry West

If you work in any segment of the catalog and/or online marketing business, you’ll continuously be affected by mergers, acquisitions, growth financing, consolidations and valuations. And that’s regardless of whether you’re an equity owner or even like the subject!

The reason is simple: Deals are changing the metrics, success hurtles and economies of scale in direct marketing. With the possible exceptions of increased postage rates and merchandise importing, it’s hard to think of other variables that have changed our competitive landscape so drastically in recent decades.

In deal making over the past few years, acquisitions by equity house investors alone greatly have changed the competitive catalog environment. There no longer is a level playing field for those without “big money” backing. In addition, many analysts would argue this situation has been amplified further through acquisitions made by large direct marketers and retailers — all again, in favor of the big and well financed.

Questions & Answers

Future installments of this column will focus on answers to frequently asked, deal and financing questions. Some of these questions will originate from the audiences at mergers and acquisitions conference sessions. Other questions can come directly from you; write to me at dmgrowth@yahoo.com. Please write “Catalog Success Question” in the subject line.

To date, I’ve received a wide variety of questions, from the fundamental to the intricate. Some want to know how to calculate earnings before interest, taxes, depreciation and amortization (EBITDA); others wonder if they prospect below their contribution to fixed expense breakeven, thereby significantly increasing sales growth (but depress EBITDA); and whether their multiple valuation deal with potential investors will improve in two to three years. In other words, “What will investors pay the most for: sales growth or profits? And, how does the answer vary when comparing sales per book breakeven to the known/proven prospect universe?”