Panel of Bankers Reels Off What Catalog Company Buyers Want

If you own a catalog company and are looking to sell it, what’s the No. 1 thing you need to know about? Time’s up. It’s what the potential buyers are looking for in an acquisition, of course. So, just what are they looking for?

During one of the first sessions of the Annual Conference for Catalog & Multichannel Merchants held May 19-22 in Kissimmee, Fla., “New Drivers of M&A Activity and What It Could Mean for You,” a panel of four bankers — David Solomon, co-CEO of Goldsmith Agio; Stuart Rose, managing director of Tully & Holland; Lee Helman, managing director of Financo; and Steven Berg, a partner at Castanea Partners — reeled off the following key attributes that potential buyers seek in a catalog/multichannel marketing company, in order of importance:

1. The strength and relationship the company has with its customers. “If relationships endure over multiple repeat purchases,” Berg said, “you can afford to pay for a lot of growth, because that growth will come with a lot of value.”

2. Size of sales.

3. Growth potential.

4. Margins. “EBITDA [earnings before interest, taxes, depreciation and amortization] growth drives multiples,” Rose pointed out. “If you have a brand and relationship that works, you should get those EBITDA margins. But in the absence of that customer relationship, you can’t.”

Solomon noted that he looks for sales growth and increasing gross margins, because they represent the catalogers’ ability to have positive relationships with their customers. “That’s very telling in terms of your position with your customers,” he said.

5. Combine high gross margins and high sales growth so people will excuse low EBITDA, Solomon said. But potential buyers will ultimately value your business on sustainable EBITDA — they want three good years of EBITDA growth.

6. Knowing the merchandise customers’ want or need when they want it or need it, Helman pointed out.

In next week’s edition, we’ll delve further into this session on why there’s such an M&A boom going on these days, and how this affects catalog company acquisitions.