2006 M&A Transaction Review

Last year was marked by the largest number of M&A transactions in major b2c and b2b cataloguing markets since 1998.

M&A transactions in the cataloguing industry have continuously been on the rise since 2001 in major markets – the US, the UK, and Germany. In 2006, there was a real frenzy of transactions with 107 transactions up from 78 transactions in 2005. This is an increase of over 35% year over year.

Development of M&A Transactions – USA, UK, Germany*

* majority stakes and 100% acquisitions only
Source: BBR Associates GmbH & Co. KG


Looking at the numbers more closely, it turns out that M&A transactions remained relatively flat for the UK and Germany, while the bulk of the M&A transactions took place in the US, where the number of deals increased by roughly 70% year over year.

The reasons for this development may be threefold:

(a) the existence of large acquisitive b2b groups of companies such Brady, W.W. Grainger and Henry Schein have a major impact on the number of acquisitions in the US,

(b) in the US, up until recently we found a relatively unconsolidated market in the b2c speciality cataloguing segment with no industry heavyweight such as the Otto Group or Redcats playing a major role relative to market size, and

(c) due to economies of scale innate in the largest consumer market worldwide, even niche players become attractive acquisition candidates as there is enough growth potential.

Cross border transactions involving either US, British or German companies on the buy or sell side were also on the rise, accounting for over 20% of all transactions in 2006. As in previous years, the lion share of all cross-border transactions originated from the b2b-segment, where internationalisation plays a more important role than in the b2c-segment – as of yet. For example, US-based Brady Corp. acquired 10 companies in 2006, 5 of which were located overseas.

Distribution of M&A Activity by Country in 2005 and 2006

Source: BBR Associates GmbH & Co. KG


As the cataloguing industry has sparked the interest of the private equity industry, financial buyers have become the major driving force of the cataloguing industry with over 25% of transactions or 28 deals involving a private equity firm on the buy side – and this only counts majority or 100% acquisitions.

At the forefront of this development is California based Golden Gate Capital which is the champion when it comes to the number of acquisitions consummated in 2006 in the cataloguing industry.

Golden Gate Capital acquired a total of 7 apparel cataloguers in 2006: Norm Thompson, Carabella/A.B. Lambdin, Haband, Venus Swimwear, Winter Silks, and Eddie Bauer. It is Golden Gate’s strategy to serve the needs of mature women over 50. In this respect, deal size or degree of luxury no longer play a role as Carabella/A.B. Lambdin only had revenues of $30 million and Haband is a downmarket concept. Golden Gate’s latest transaction in January 2007, the acquisition of publicly listed Blair Corporation underlines this strategy.

Strategic buyers still had a chance in the acquisition game for attractive candidates if they were willing to pay the price. This was the case when Redcats of France agreed to acquire publicly listed Sportsman’s Guide in the US in May 2006. Fuelled by the private equity sector having access to ample funds and favourable financing terms, valuations have substantially increased over the past years. Redcats paid over 12 times EBITDA for Sportsman’s Guide and a premium of 20% over the stock price.

This development has also reached European markets, where historically transaction values in the cataloguing industry hardly ever exceeded one times sales regardless of profitability. However, in December 2006 the UK’s Barclays Private Equity acquired a majority stake in Artigiano based on a total enterprise value of more than 12 times EBIT and more than twice current year sales. Artigiano had sales of less than GBP 20 million. Considering that we are operating in only moderately growing markets in Europe, this puts a lot of pressure on the “newly weds” to outperform the market in order to justify the price.

For 2007, we expect continued and strong M&A activity propelled by the private equity industry. Due to the competitive pricing environment, we are already observing that private equity players are beginning to move down in terms of deal size and quality of earnings. In addition, for Germany we expect to see larger transactions as the KarstadtQuelle conglomerate will be divesting quite a few non-core speciality catalogues in the wake of their restructuring program.