Enter the Private Investor
In the past several years, the catalog industry has become an attractive target for financial investors. These private equity firms and institutional investors differ significantly from strategic investors looking to build their own businesses.
When a cataloger like School Specialty buys 45 companies in the span of 10 years, its purpose is to build its own market share. Likewise, when Deluxe Corp. purchased New England Business Service last year. But it may be another scenario when an outside financial investor is the buyer. Such an investor may be in it only for the short-haul, to make money on the investment in three to five years, then sell it and move on to the next deal.
That’s not necessarily a bad thing. Oftentimes, financial investors have resources and expertise that catalogers wouldn’t have available to build the business themselves. Selling all or part of the company may be the only way for the cataloger to get to the next level of profitable operations.
It was about 10 years ago when the financial community started seriously looking at catalog acquisitions. Before that, catalogers were almost all independents, says Donald Libey, managing director at Libey-Concordia, Philadelphia-based investment bankers to the catalog industry. Libey notes several reasons financial investors have developed an interest in catalogs:
1. “Catalogs are formulaic. Private equity groups are [comprised of] numbers people, and with a catalog, it’s all spelled out in black and white,” Libey says. “So there’s very little risk knowing how the catalog will perform.”
2. Catalog sales are growing at 8 percent a year or more, “faster than any other industry except drug companies. This is a high growth, high margin, high return on investment business,” he notes.
3. A catalog is an integral part of a multichannel business. “For a company that wants to grow an Internet business, the catalog provides a leg up in multichannel marketing,” says Libey. “Plus, catalogers have a huge advantage in customer service levels over retailers.”