Larry West

Larry West
Ask the Right Questions to Get Your Metrics Positioned

Whether your catalog company is at $10 million or $150 million in revenue, there are questions about the key metrics of cataloging and Web marketing you should ask yourself — and know where and how to find answers — if you expect to regularly generate above-average profits. Here are the key areas; some are in the form of questions that I use when helping direct marketers prepare their strategic plans, raise growth financing or sell part or all of their business. Merchandising Q1. Describe your merchandising and buying function. Is it a “one-man show?” Q2. Who attends trade shows, makes overseas sourcing trips, selects final products? Is

Due Diligence Homework: Key Issues to Watch For

As a heads-up for catalogers, let’s note some challenges you need to watch for: 1) The 2007 postage increase is much more nasty than one can imagine. Not only will it decrease your reported profits, but it will also increase your prospect breakeven. And it will, of course, shrink the size of your economically available, mailable prospect universe. Investors already have determined that higher postage will retard catalog business profitability in 2007 and beyond. So catalog company valuations already have begun to shrink for sellers, buyers and growth financing sources. 2) By having to report shipping and handling revenue you receive (from customers) in your top

Valuations & Acquisitions: Why Deal Due Diligence Is Worth a Try

In my last Catalog Success column, “What Acquisition Due Diligence Reviews Can Teach You” (February 2007, pg. 37), I explained why catalogers can benefit from embracing and using the analytical models employed by acquirers and financing sources in this industry as they decide which catalog/Web marketing businesses to pursue. Now, onto the use of due diligence methodologies in catalog deal-making. These are some of the key analyses you should use in most of your seasonal circ plans and your annual strategic plan. Furthermore, and of no small importance, these are the same metrics and analyses your local banker should be using when deciding on

Ways to Use Models

To help maximize profitability: You can do so through the use of optimizing prospect circ, and 12-, 24-, and 36-month lifetime value calculations. This includes decisions about sales vs. profit growth and improved “managing” of reported profits. For company valuation calculations: 1) to tell the “catalog opportunity story” when raising growth financing — whether from a local bank or equity/debt source; 2) when buying another company —to help define purchase price and secure financing; 3) when selling part or all of a catalog business; 4) for customer list valuations in deal-making — or for your local banker, who won’t increase your line of credit without strong, analytical explanations; and 5)

Never Too Small to Sell

Question: I want to sell my company, but I’m too small potatoes for M&A intermediaries to take an interest. What should I do?

The first thing to ask is whether you have a growth story within your company. That’s the most important thing; that’s the future of your company. It’s in your marketing results, particularly in your prospecting performance. It comes in two forms: prospect mailings and a review of the prospect universe room for growth. The answer is in your proven prospect universe, which is the quantity of names you can mail at breakeven or better. Those names typically come from either standard list

Valuations & Acquisitions: What Acquisition Due Diligence Reviews Can Teach You

As competition among acquirers of catalog companies has increased and multiples have grown, these buyers have become more sophisticated in their acquisition due diligence reviews (DDRs). “Multiple” refers to the multiplying amount applied to the latest 12 months of EBITDA (earnings before interest, taxes, depreciation and amortization), to equal the final valuation. And this especially is true for equity house investors, all of whom have extensive fiduciary responsibilities to their sources of capital, which often are insurance companies, pension plans, banks and other institutions. In fact, even most large direct marketers don’t acquire catalogers without similar intensive DDRs. DDRs help as you do your circ

Know When to Sell

Catalog owners tend to assess their year-earlier performance while on a short break after the holiday sales period, and often come back to the office ready to change or improve their positions. Simply, they ask themselves if last year was enough; now can I/should I sell out? And if so, what the devil are the next steps?

The proper answer requires you to ask yourself a number of questions:

1. Why are you selling?
2. What growth “storyline” have you accumulated (for a good valuation)?
3. If this is, indeed, the right time to exit, should it be all-at-once, or via a phased-out program for you and your

Quantifying Year-End M&A Activity

At the annual DMA Catalog Council holiday reception held in New York on Dec. 5, two different catalogers asked a similar series of questions.

*Is catalog dealmaking winding down, or is a lot still going on?

*Are the two key buyers driving the market still equity houses and retailers?

*Will there be a lot of deal announcements in January?

They began their questioning by noting that it’s nearly mid-December and while general 2006 M&A activity reported in the national press is at an all-time high, cataloging deals seem relatively minimal.

My answers are fairly similar to this time last year, and they’re somewhat intertwined. Yes, a

Catalog Licensing Agreement Questions Answered

A reader of the most recent M&A:Q&A asks: “How long is the typical term of the licensing agreement in these deals? Do they go on forever, as long as either party does not breach? What’s the risk to Blue Sky of investing in these deals and then losing the license in five to seven years?” (Click here for original column)

Larry West responds:
License agreements are typically for an initial term of three to five years, with co-renewal rights. Some can be as long as 10 years. Others, similar to these, can be renewed in perpetuity.

Having said that, you’re right, the ultimate term depends on

Behind the BlueSky Brands-Winterthur-NWF Catalog Licensing Deals

These are complex deals and for the launch of my new section on, I will explain some of the metrics and reasons for this unique transaction structure.

First, however, here’s the deal: BlueSky Brands, which owns the for-profit Paragon and Bits and Pieces catalogs, signed exclusive licensing agreements to manage and operate the direct-to-consumer catalog and Internet merchandising businesses of Winterthur Museum & Country Estate and the National Wildlife Federation (NWF), both of which are nonprofit organizations.

Winterthur and NWF have operated successful direct response merchandising business for years. In this deal, BlueSky formed two operating brands: Winterthur Direct (WD) and National Wildlife

Valuations & Acquisitions: Know What to Ask

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