Why an M&A ‘Boom’? 5 Reasons

During a session at the Annual Conference for Catalog & Multichannel Merchants held May 19-22 in Kissimmee, Fla., David Solomon, co-CEO of Goldsmith Agio, pointed to several reasons — both general and directly related to the catalog/multichannel business — why mergers and acquisitions have continued to increase over the past few years.

1. Value creation for strategic buyers. He cited multititle cataloger Redcats USA’s $198.9 million acquisition of United Retail Group last year. The deal not only catapulted Redcats into retail with 500 Avenue stores, but it also gave Redcats’ Woman Within plus-size woman’s apparel catalog and some of its other women’s catalogs synergies with the plus-size women’s apparel Avenue chain.

2. Technological change. He cited several ways rapidly changing technology has impacted the M&A market. These include the following:

* improving database speed and capabilities;

* improving sophistication of targeted marketing;

* e-mail, BlackBerrys and mobile phones have accelerated communications at breakneck speed;

* change creates new markets and makes others obsolete; and

* the rapid evolution of the Internet that’s given rise to Google, Zappos, Facebook, MySpace, blogs, chat rooms and others.

3. Rise of private equity. Solomon noted that $720 billion of capital raised over the past five years has come via private equity, compared to $43 billion in 1997. Private equity firms have executed $1.3 trillion in deals over the past five years, and there’s been an estimated $300 billion in uninvested capital.

This has also led to a shift from generational ownership, in which company owners hang onto their companies for 35 years on average, to five-year ownership holds, representing a seven-times increase in five-year holds.

4. Globalization. “Middle market companies have production in China and sales offices in Europe,” Solomon pointed out. “They have instantaneous communications around the world with global telecommunications and infrastructure.”

Globalization also has led to the international integration of global brands, and the global supply chain structure requires the acquisition of a multinational footprint, he noted.

5. Aging baby boomers are beginning to retire. The next 20 years will see baby boomers (currently ranging in age from 44 to 62) reaching retirement. “Many children don’t want to run their parents’ businesses,” Solomon pointed out. “So we’ll have a boom of entrepreneurial divestitures and sales that’ll increase the flow of company sales.”