Merger Action Typical in 2002 Despite Bad Economy

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Direct marketing companies announced 557 transactions with a total aggregate value estimated at $24.8 billion last year, according to Petsky Prunier's Direct Marketing Deal Notes, provided exclusively to DM News yesterday.

A "sideways economic picture" undercut marketing budgets for customer acquisition, stalling growth and crippling profitability among list companies, service bureaus, media and creative agencies and other firms that focus on acquisition services, the report said. Marketers instead invested in retention marketing, cross-selling and customer development, which helped CRM, statement processing, niche fulfillment and call centers.

The volume of direct marketing industry transactions in 2002, measured both in expenditures and number of transactions, was in line with levels of the past several years. Last year 10 deals with estimated transaction values exceeding $500 million were reported, and 37 deals were valued at $100 million or more.

Established enterprises sought large brands to help build global reach. Examples included Lands' End's acquisition by Sears for $1.9 billion and Ticketmaster's acquisition by USA Interactive for $700 million.

Highlights of 2002 M&A results include:

*DM merchants. There were 120 deals representing 22 percent of activity and $13.5 billion, or 54 percent, of volume. The average deal size was $112.2 million, and the median deal size was $23.5 million. The year included the Lands' End buy, the carving up of Fingerhut and private equity groups acquiring Dr. Leonard's Healthcare, J.C. Whitney & Co. and Potpourri.

*DM services. There were 212 deals representing 38 percent of activity and $5.6 billion, or 24 percent, of volume. Average deal size was $26.6 million, with a median deal size of $10 million. Major deals included the sale of CRM and data analytic companies Navision, HNC Software and Remedy for a total of $2.6 billion, or 47 percent of the group's transaction dollar volume.

*E-merchants. There were 48 deals accounting for 9 percent of activity and $667.5 million, or 3 percent of volume. The average deal was $13.9 million, and the median deal reached $5 million. Homestore's credit information service was acquired by Experian for $130 million. Classic Custom Vacations was acquired by Expedia for $78 million.

*E-services. There were 177 deals representing 32 percent of activity and $5 billion, 20 percent of volume. The average deal was $28.1 million while the median deal was $5 million. Liberty Cable consolidated interactive television through a series of transactions involving OpenTV, Wink Communications and ACTV. Internet ad service providers ValueClick and BeFree merged, forming an entity with more than $270 million of Internet IPO cash in the bank. Equifax executed a $130 million acquisition of Naviant.

The five most active industry segments based on number of transactions were consumer catalogs (52 deals), CRM (41), e-mail (37), supply chain (31) and teleservices (29). By dollar volume, the five top segments were consumer services ($3.4 billion), consumer catalogs ($3.3 billion), business-to-business catalogs ($2.2 billion), online billing ($1.9 billion) and CRM ($1.8 billion).

Seventy-one percent of 2002 industry transactions involved a strategic buyer, accounting for 79 percent of dollar volume ($19.6 billion) and an average transaction size of $49.9 million. The rest involved private equity buyers.

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