Valuations & Acquisitions: For Smaller Mailers, 2008 Forecast Calls For Pain
I would have preferred my first column for Catalog Success to focus on good news. But I just can’t describe a rash of businesses that are about to close or sell in 2008 as good news.
The 2008 valuations and acquisitions forecast for multichannel marketers looks cloudy, especially for those in the $20 million to $50 million range whose businesses remain print-centric. Paper and postal price hikes imposed last year will likely lead entrepreneurs to sell this year.
The Storm’s Here
A perfect storm of increased paper and postal costs has conspired to put a chokehold on mailers everywhere, particularly small and midsize businesses. Rates for Standard mail flats — the category affecting most catalogers — increased 40 percent for some. And smaller companies are bearing the brunt. It’s been nearly 15 years since we’ve seen this kind of double whammy.
The end result sent most mailers into the all-important fourth quarter on unstable footing. There was little testing time to figure out prudent courses of action. Granted, few businesses rely solely on print catalogs these days. But the printed page remains the fuel for the multichannel machine.
Most mailers weren’t very jolly this holiday season, with sales flat or down. Then there’s the economic mess from the mortgage crisis and consumers who’ve overextended credit card debt. And has anybody seen gas prices lately? Couple that with declining home values and things could get ugly.
How ugly? Sagging sales are putting downward pressure on multiples and valuations, which means sellers won’t get as much for their businesses. Suddenly, all the entrepreneurial sweat equity built by business owners has been reduced to just sweat.
It’s like buying and selling stocks. You wouldn’t sell your stock after buying it high. Rather, you’d ride out the storm, protect your paper losses as best you could and wait it out until the market improves. That sentiment is exactly what's being forced on entrepreneurs..
Sell or Shut Down?
But many businesses in the $20 million to $50 million range will be forced to sell. Several are weighing their options right now. And I use the word options kindly. From where I see it, struggling mailers can either sell to a catalog aggregator or private equity firm, or simply shut their doors.
It’s not like staying the course is an option. As Lee Helman, managing director of Financo, a New York investment bank, explains to me, “Holding on won’t be much fun as the previously profitable company won’t make any money now, and the owner will be forced to reach into his pocket to fund the loss this year.”
While there’ll be plenty of opportunistic buys (read: fire sales) for the Orchard Brands and Potpourri Holdings of the world, it’s not good news for the smaller marketers among us. And that’s the true travesty: In all of this, the entrepreneur is the victim.
And what’s further exacerbating the sell-off this year? The capital gains rate. Presently at 15 percent, the capital gains rate is likely to increase should the Democrats win the White House, Helman says. That makes the idea of selling now appear that much more appealing.
I suppose this industry has always been survival of the fittest, dating back to the old Hanover House. But can you remember the last time anyone introduced a truly unique and revolutionary product? After this latest round of closings and fire sales, consumers will have even fewer choices, and fewer innovative ideas will reach the marketplace.
While it may be too late for those who already sailed into the iceberg, prudent multichannel merchants still have time to ratchet up their businesses. But if you have some flexibility, do yourself a favor and take the time to improve your key metrics, such as online marketing.
Online spending this year is up 20 percent. If the mail arriving in the mailbox is driving online purchasing, then mailers need to mail more efficient catalogs, even if that means mailing fewer pages. Helman, for one, prescribes a familiar medicine to marketers: Mail smarter. Prospect with smaller, more economical catalogs using the 20 percent of your products that generate 80 percent of the sales. Drive as much revenue to your Web site as possible. E-mail special offers. Send postcards with special e-mail offers. Get people online and off the telephone, and get more efficient in your contact and fulfillment centers.
Still Time for a Fix
The fate has been cast for the small and midsize mailers: It’s too late for them. But there’s still time for you to fix your business. To loosely paraphrase Bette Davis in All About Eve, Fasten your seat belts multichannel marketers; you’re in for some bumpy nights.
Mark Del Franco has covered valuations and acquisitions and other multichannel issues for a decade. You
can reach him at mark.delfranco @yahoo.com.
