Valuations & Acquisitions: Know What to Ask
Learn by Example
You can sense how much more competitive the catalog/Internet marketplace has become and how important it is to try to learn what you can by looking at recent catalog deals. Consider these:
General merchandise/gifts: American Capital acquired Potpourri Group; Carlyle Group acquired Oriental Trading Co.; and Blyth Inc. acquired Walter Drake and Miles Kimball Co.
Apparel: Charming Shoppes acquired Crosstown Traders; Golden Gate Capital acquired Spiegel, Newport News, Draper’s & Damon’s, Appleseed’s, The Tog Shop and Norm Thompson Outfitters.
Home and décor: The Home Depot acquired Home Decorators Collection; IAC/InterActiveCorp acquired Cornerstone Brands.
Specialty foods: Wasserstein & Co. acquired Bear Creek Corp. (Harry and David, Jackson & Perkins catalogs).
There are many more examples, and not all of these deals have been sufficiently successful to increase the competitive threshold. But even the relatively
few failures affected most all of the other marketers in the product categories involved.
What to Focus On
In future columns, we’ll explore deals across product categories and within individual companies for multiples, trends, competitive changes and
operating performance you need be on top of, as you plan, grow and position the business you’re in.
Historically, most strong direct marketing businesses were largely built from one or more aspects of superior merchandising, and this continues today. For both small and large catalogers, this metric is of course what EBITDA is all about, and the basis for multiple valuation. Of all the variables to focus on, this is the most important.
Whether you’re large or small, if you don’t pay the accounting fees to produce an audited annual statement, you’re making a big mistake. The lack of audited statements (as opposed to reviews or compilations) can limit your attractiveness in the deal marketplace for both acquisition and growth financing transactions.
As your operating expenses increase, especially those related to transportation and oil (such as freight-out, importing and catalog production), in what ways should you consider being a buyer or seller to gain the benefits of savings from larger economies of scale?