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 lot of this year’s acquisitions were driven by equity house and catalog buyers. But in the catalog and e-commerce markets, most participants are far too busy in December (and, to a degree, throughout the entire fourth quarter) to seriously focus on dealmaking. As a generalization, this seems historically true, whether they are buyers or sellers. This year remains true to form.

Catalog company owners typically are too busy trying to fill holiday demand and back orders to be spending the serious time required to be a buyer or seller — or to be raising growth or investment capital. In addition, they need to see at least a close estimate of year-end EBITDA as a metric of whether to proceed or not. (EBITDA — earnings before taxes, depreciation and amortization — is a measure of a company’s cash flow that allows investors to see how much money a company is making before deducting these factors.)

These factors seem like common sense, but there are exceptions. First, there are the deals that have been brewing since around mid-year, and for which 12/31/06 is the target for closing. They will get announced in the first few days of 2007. I personally don’t think we’ll see many (of any meaningful dollar size) this year in the catalog business.