DM Acquisitions Are Off Last Year's Pace
The figures represent drops of 25 percent and 10 percent, respectively, from the same period last year.
"Though earlier this quarter it was reported that overall M&A activity in the U.S. was picking up -- and strategic buyers are beginning to be more aggressive on acquisition opportunities -- the general feeling among the deal-making community is that the decrease [in] DM deals is consistent with the market at large," according to the report produced by the New York-based investment bank that provides merger and acquisition advisory services. "Corporations are not straying too far afield, and private equity players are still not able to tap debt markets to leverage their deals."
But the report identified several sectors in DM that are producing "significant transaction activity," including:
· Fulfillment, with seven deals worth $362 million in estimated value.
· Transaction processing, with seven deals worth $424 million.
· Consumer service direct marketers, with six deals, including two insurance DMers, worth $657 million.
· Business-to-business direct marketers, with 13 deals worth $1.9 billion.
· CRM, with 16 deals worth $2.2 billion.
· Interactive service marketers, with nine deals, led by InterActive Corp.'s (formerly USA Interactive) deals to acquire Expedia, Hotels.com and LendingTree, worth $5.2 billion.
The report said that substantial direct marketing industry deal volume is attributed to new market entrants such as Internet-centric companies InterActive Corp., eBay and Autobytel as well as CRM providers PeopleSoft, Unica and Siebel. It noted that traditional direct marketers and service providers are starting to "stick their toes in the M&A waters" as NEBS, Taylor Corp., NBTY, Brady Corp., Vertis, R.R. Donnelley and Banta made acquisitions in the past quarter.
"Independent/growing direct marketers are finding it fortuitous to pursue acquisitions during this market slowdown, including librarian supply cataloger Demco's acquisition of competitor Gaylord; Great Hill Partners-backed SmartMail Services' acquisition of Drop Ship Express; and Focus Interactive's acquisition of MaxOnline, the online media division of MaxWorldwide [formerly L90]," according to the report.
The 223 transactions are divided between direct marketers of products and services to consumers and businesses, and the service providers in areas such as database marketing, customer retention, fulfillment and customer care. Details include:
· Direct marketers generated 61 deals in the first half of the year, down 31 percent from that period in 2002. Estimated transaction volume rose 7 percent to $8.7 billion, attributed substantially to the InterActive Corp. deals. Also, 34 percent of deals involved Internet-centric businesses, up from 32 percent.
Significant deals in the second quarter included Office Depot's $875 million acquisition of French office supply marketer Guilbert; ZelnickMedia/Ripplewood Holdings' $61 million purchase of Lillian Vernon; and NBTY's $250 million acquisition of vitamin competitor Rexall Sundown.
· Service providers accounted for 162 deals, down 22 percent from the first half of 2002. Estimated transaction volume reached $4.5 billion, down 32 percent. Also, 46 percent of deals involved Internet-centric businesses, up from 43 percent.
Significant deals in the second quarter: World Marketing acquired two lettershops (Diversified Direct and Republic Mailing); Money Mailer was purchased by Roark Capital; and publicly held MDC Corp. of Canada said that it would reacquire the 18 percent of DM/general agency Maxxcom, which it spun off in an IPO due to Maxxcom's underperformance.