Transaction activity was brisk for direct marketing companies in the first half of the year as 280 acquisitions with an aggregate value estimated at $13.5 billion were announced, said Petsky Prunier LLC, New York, an investment bank specializing in the direct marketing industry.
As a result of sizable acquisitions completed late in the period, including the Sears-Lands' End deal, the average transaction amount was pushed to a record $48.8 million. Petsky Prunier reported a “significant volume of deal activity” across all sectors of the industry, with the 20 largest deals covering 15 industry segments. Direct sales companies accounted for five of the eight transactions with announced values greater than $500 million, and eight of the 18 deals above $100 million.
Michael Petsky, CEO of Petsky Prunier, said, “there's an overall impression that database marketing is a strong, efficient way to get to the customer.
“There are plenty of buyers out there, and they are looking at companies that had a rough 2001, but they have faith that they will get through the cycle,” he said. “It's a pretty robust market out there.
“M&A in all industries have been depressed, so it's been surprising to see the buyers come out of the woodwork to get the deals done in the direct marketing sector.”
There will be “a consistent level of activity” for the second half of the year, Petsky said, with consolidation taking place with list companies and in the telemarketing sector as well.
Merchants accounted for 60 deals, or 21 percent of activity, totaling $6.9 billion — 51 percent of total volume. This included Sears Roebuck's acquisition of Lands' End for $1.9 billion. Catalogers, including consumer and business-to-business, represented 53 percent of deal volume among merchants.
DM services produced 103 deals, or 37 percent of activity, totaling $3.8 billion, or 28 percent of total volume. The most active DM services segment was customer relationship management. CRM transactions accounted for 19 deals valued at more than $1.5 billion.
E-merchants generated 25 deals, or 9 percent of activity, totaling $448.6 million, or 3 percent of total volume. This included Nordstrom paying $70 million to Benchmark Capital Partners to acquire the minority interest it did not own in Nordstrom.com.
E-services tallied 92 deals, or 33 percent of activity, totaling $2.3 billion, or 17 percent of total volume. The most active segments were software tools, exchanges, e-mail and research. Developing segment interactive television accounted for 20 percent of the dollar volume.
By type of transaction, strategic buyers bested private equity groups in deals with 74 percent of all deals accounting for $9.8 billion of the $13.5 billion in aggregate value.
Among the 74 private equity deals, venture capital investments accounted for 54 deals. However, buyout groups accounted for $3 billion, representing 81 percent of private equity deal value.
With an average deal size of $13 million, venture capital transactions focused on service sector investments, both online and offline. CRM and software companies, including back-end, supply chain and online tools, accounted for most of the deals.
While there were only 20 buyout transactions, the average deal size was $150.8 million.