2009 M&A Distance Selling Transaction Review

Last year was marked by a record number of transactions that were bankruptcy or pre-bankruptcy cases in the UK and Germany.


With a total of 100 M&A transactions in the three core countries US, UK and Germany, the number of transactions in the distance selling industry edged slightly upwards compared with 2008. This may be surprising as we expected a decreasing number of transactions in 2009 due to restrictive bank financing and the reluctance of successful entrepreneurs to sell their company at depressed valuations.

However, looking behind the scene quickly reveals the true reason for the increase in transactions. The proportion of companies that was acquired out of bankruptcy proceedings or was about to go bankrupt was at a record high at 38% of all transactions compared with 25% in the previous year. In addition, we suspect that the number of unknown bankruptcy or pre-bankruptcy stage cases was even higher and would have added to the count.

As expected, the number of deals with private equity/financial investor participation decreased significantly from 25 in 2008 to 20 transactions last year. There were hardly any surprises in this segment. The majority of transactions were turnaround cases or transactions with small transactions sizes which required little financing. Noteworthy transactions in this segment were the acquisitions of J.Jill and Eddie Bauer by Golden Gate Capital in the US. This move saved J. Jill and Eddie Bauer from demise. Last but not least, the acquisition of RTL Shop UK by Aurelius and the acquisition of HSE24, the home shopping network of Arcandor by AXA Private Equity were also meaningful transactions in the financial investor segment.

When looking at the geographic segments, the US significantly decreased its total share of all transactions. On the other hand, the UK, Germany and the cross-border segments all increased their number of transactions and relative share. In practical terms, we can observe how the economic cycle time lags work in the three distance selling core countries USA, UK and Germany. While the US could put behind the vast majority of bankruptcies already in 2008, the UK and Germany laboured over a staggering number of cases last year. The UK was most affected in the first six months of the year and Germany in the second half of the year.

In the US, the number of M&A transactions decreased significantly with 33 transactions in 2009 down from 56 transactions the previous year. The reasons for this development may be manifold: On the one hand, the US had its bankruptcy shake-out in the previous year. On the other hand, there was a combination of a tight credit market and unsatisfactory financial results of possible acquisition prospects. Finally, serial acquirers such as Airgas (10 transactions in 2008) could not keep up the pace last year (2 transactions).

In the UK, the number of transactions increased by 6 to 26 transactions in 2009. Of these transactions, 18 or almost 70% of all transactions were bankruptcy or pre-bankruptcy cases. In particular, the first six months counted 14 bankruptcy implied cases while the second part of the year was a lot calmer with only 4 bankruptcy implied cases.

In Germany, the number of transactions more than doubled last year from 8 to 19 transactions. Also the German transaction count was heavily influenced by bankruptcy implied cases with 11 out of 19 transactions. In the second half, we counted the most bankruptcy implied cases with the Arcandor group dominating the statistics with 5 transactions in the distance selling segment.

The number of cross-border transactions doubled last year and were back to 2007 levels. Cross-border transactions are those transactions where the seller or the buyer is located in the UK, USA or Germany and the counterpart is located in any other country. Traditionally, the cross-border segment is dominated by the b2b segment which accounted for more than half of the transactions in the cross-border segment last year. Moreover, there are several well positioned multi-national corporations in the b2b segment which were chasing bargains last year, e.g. Brady with the acquisition of Welco in October 2009.

The Otto Group could also further cement its prime positioning in the market with four acquisitions last year: In Germany, Otto bought Limango, a type of Vente Privee for families and acquired three cataloguers out of bankruptcy; Venus Swimwear in the US, major assets of Quelle Germany and the operations of Quelle Russia.

The largest and most significant transaction was the acquisition of Zappos by Amazon for USD 850 million. The main motivation for this transaction was to take a future major competitor from the market.

A ground-breaking transaction was the purchase of Retail Convergence consisting of Rue La La and SmartBargains by GSI Commerce in the US. Rue La La is a company in the segment of private sales such as Vente Privee and SmartBargains is a pure online retailer for bargain hunters. With this combination, GSI Commerce becomes a services provider and retailer at the same time.

For the current year, we expect a decreasing number of bankruptcy implied transactions because the market shake-out has already taken place in the US and the UK. A special case is the Arcandor Group for which we expect several interesting transactions taking place successively over the next few years.

Furthermore, we expect entrepreneurs to continue to be reluctant to sell their companies as the crisis has not been overcome yet in Europe, particularly in the b2b segment. The bright spot will likely be the US, where the market for corporate bonds has already ignited a growing number of M&A transactions.

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