These are complex deals and for the launch of my new section on CatalogSuccess.com, 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 Direct (NWD). The nonprofits turned to BlueSky to gain access to its large scale multichannel marketing operations, expertise and resources. The nonprofits will benefit from BlueSky’s economies of scale in marketing, creative, fulfillment, merchandising and Web site design and search marketing capabilities. This will help them secure revenue from each sale that directly supports their respective organizations’ programs and educational missions.
As the intermediary and financial advisor to BlueSky for both these transactions, my firm, West Cos., reviewed all performance data and conducted various analyses.
In describing the deal, BlueSky CEO Richard Hebert said in a statement: “These transactions allow the competitive advantages of a large for-profit direct merchandising organization to be leveraged within the select environment of the nonprofit community. BlueSky’s agreements with Winterthur and NWF (will) strengthen their brand awareness and core mission support, while also securing their catalog and Internet merchandising operations.”
Part of why we’re launching this Web column is to explain to catalogers why catalog acquisitions are made and how they may change or improve your competitors. What’s more, what might you want to do in reaction to the change in the landscape. Few people have access to the information gathered during the typical three-month due diligence period prior to closings, the details of which would help you understand why catalogs change hands.
The BlueSky deal was both an acquisition and a licensing deal. The assets were acquired just as they would be in any standard asset deal. But in addition, a licensing agreement was struck. Although common in many industries, licensing agreements are uncommon in cataloging.
In an exclusive merchandise licensing agreement, the licensor retains the right to limit the licensee’s rights to the specified merchandise only, as well as the right to approve any changes in that merchandise. The licensor often has the right to approve not only all licensed merchandise, but also all related packaging and advertising materials.
Although payment terms were undisclosed, expect a lot of money flowing from BlueSky to the nonprofits. For such organizations, a fairly predictable cash flow without real investment risk is a Godsend, especially since it has become tougher for both nonprofits and for-profits to generate respectable profits and ROI in recent years. They all labor under the same severe expense increases in postal and parcel shipping rates. So it’s not unusual today to see a nonprofit cataloger, even ones with revenue of $25 million to $50 million, to post losses. Most trustee boards find this lack of ROI and risk profile unacceptable.
Future installments of this column will explore some other reasons nonprofits establish licensing agreements with larger, for-profit direct marketers. And if you compete in the gift, home, apparel or bedding categories, you’ll want to follow our analysis, because such deals will result in greater competition for you.
As for BlueSky, the company’s goal is to grow and improve its own EBITDA. And the most direct path to accomplish this is to leverage its economies of scale against the two nonprofits’ catalog businesses. NWD has 328,000 12-month buyers, WD has 307,000.
Parts of the NWD and WD catalog lists are widely used by a broad spectrum of home, decorative and gift mailers, as well as some apparel and other nonprofits. BlueSky’s The Paragon also uses these lists, which tells you there is already list synergy within the newly expanded BlueSky family.
The resulting BlueSky business has new sub-businesses, due to the newly created large customer counts within certain merchandise categories. These include children’s, lawn and garden, apparel and jewelry. Combined with BlueSky’s assorted economies of scale, the prospect breakeven P&L demand per catalog mailed will decline, thereby increasing the prospect universe size not only for WD and NWD, but also for parts of The Paragon. This will have a ripple effect on the product categories mentioned above, some of which may be yours. So you should now be considering how to react.
There are many other analyses readers can conduct with readily available public data. I’ll present a number of them in future Catalog Success columns, both online and in print.
If you have questions about this deal or other mergers and acquisitions, please submit your queries using the comments field below.
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