Direct marketing firms announced 49 merger and acquisition deals in January for a total of $685.7 million.
This was the highest since last November, according to Petsky Prunier LLC, a investment bank specializing in DM transactions. But the average deal size was only $14 million, the lowest for any one-month period.
And that is partly because "few organizations are currently pursuing aggressive acquisition programs," Petsky Prunier reported.
Anecdotal evidence suggests that few CEOs are straying beyond their core competencies when acquiring companies, the firm continued. In addition, Internet valuations have "come down to earth."
But Petsky Prunier predicts that "once the burden of 2001 is lifted from the shoulders of buyers, the realistic value expectations of sellers will lead to a surge in M&A activity." Mergers of equals will contribute to this volume as slim-margin firms, as they did last year, seek security in scale.
Included in the January totals were 22 deals worth $237.3 million conducted by e-services firms. The most active buyer was online media firm Carat Interactive, which acquired Lot21, an interactive agency, and Vezium, an e-mail company.
The second most active group was direct marketing services firms, which executed 16 deals totaling $182.8 million. Moore Corp. was out in front, acquiring Document Management Services, Canada's largest print and mail service, and The Nielsen Co., a large Midwestern printer.
Next was direct marketing merchants, who undertook nine transactions for an estimated $149.6 million. The largest was MIM Corp.'s acquisition of Vitality Pharmaceutical for $45 million.
E-merchants took up the rear, making only two deals for $17 million.
As for the types of deals, 34 were acquisitions adding up to $561.2 million.
Twelve were investments totaling $107.5 million. One was the $14 million cash infusion Sur La Table received form Freeman Spogli to expand its retail and Web site operations.
Two transactions were management buyouts. Most notable was Sigma Marketing Group's repurchase of itself from Acxiom Corp. And there was one merger.
Meanwhile, this year's capital outlook is spotty. Petsky Prunier reports that lenders have pulled back on small cash-flow lending, which is "essential for fragmented industries like direct marketing."
Debt financing is available only at debt-to-cash levels of no more than 2.5 to 1. And private equity groups are seeking firms with more than $10 million in EBITDA.
This is partly due to the fact that "there are fewer growth stories in the industry today than just a few years ago."
However, firms are looking for acquisitions after suffering single-digit growth rates and a general lack of expansion from market-share gains.
