Direct Marketing Mergers Heat Up in The Third Quarter

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The "long-awaited pickup in overall M&A activity in the U.S." has carried over to the DM industry, according to Petsky Prunier's Direct Marketing Deal Notes for the third quarter.


DM firms announced 70 transactions with an aggregate value estimated at $15.7 billion, a dollar total that skyrocketed 127 percent from the same period a year ago. And in the first nine months of the year, 259 transactions were announced in the industry totaling an estimated $33 billion, up 61 percent from the same period in 2002.


Petsky Prunier LLC, New York, an investment bank providing merger and acquisition advisory services, said that highlighting the quarter was Liberty Media's acquisition of Comcast's 57.5 percent stake in QVC, worth about $7.9 billion. Other noteworthy deals included Caremark's announced purchase of AdvancePCS for $5.6 billion in cash and stock, and Yahoo's acquisition of Overture Services.


Caremark, whose pharmaceutical mail-order operations account for more than 49 percent of its revenue, will acquire AdvancePCS and add about $2.3 billion in annual mail-order revenue.


The Yahoo-Overture deal "is indicative of a trend that we expect to continue -- the combination of search marketing companies with other digital marketing service providers," the report said. Yahoo bought Overture for $1.63 billion in cash and stock "to establish itself as the largest global player in the growing Internet advertising sector."


Also reported was that the software segment of the industry produced nine transactions in the quarter totaling about $63.5 million. Fair, Isaac acquired Narex, a provider of analytic solutions for collections and recovery, in a $10 million cash deal. FindWhat.com announced plans to acquire Miva, a supplier of e-commerce software and services to small and midsized businesses, for about $10 million in cash, stock and assumed liabilities. And interactive TV firm OpenTV announced its $10 million buy of BettingCorp, a London-based developer and operator of betting technology.


The report separates direct marketers and service providers.


Direct marketers generated 25 deals in the quarter, down 42 percent from last year's third quarter. Transaction volume was $13.1 billion, up 152 percent from 2002's third quarter.


Also, 12 percent of deals involved Internet-centric businesses, down from 37 percent a year ago. Deals included: Patterson Dental's $575 million acquisition of business-to-business DMer AbilityOne Products; Barnes & Noble's $164 million "minority squeeze out" of Bertelsmann AG's stake in Barnesandnoble.com; and CDW's purchase of certain North American assets of Micro Warehouse for $22 million.


Service providers accounted for 45 deals in the quarter, down 51 percent from the year-ago quarter. But estimated transaction volume was $2.6 billion, up 51 percent. Also, 40 percent of deals involved Internet-centric businesses versus 41 percent in 2002's third quarter.


Deals included Von Hoffmann's acquisition of printing company Lehigh Press for about $110 million; eCollege's purchase of education marketing service provider Datamark for $72 million; and DoubleClick's acquisition of CSC Advanced Database Solutions.


The report also said that digital marketing M&A activity is rising as ValueClick recently announced it will pay $58 million in a combination of stock and cash for affiliate marketing service provider Commission Junction.


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