MERGERS GALORE: The Toy Industry Goes Merger Crazy!
There has been some BIG news in the world of toys this week, with Bloomberg letting the cat out of the bag in terms of a Hasbro and Mattel merger, plus the announcement concerning VTech acquiring Leapfrog for the perhaps surprising amount of $72m (reported amount).
So wow, there’s some impactful headlines, but what is the reality? Has the toy industry gone merger/acquisition crazy?
Well actually, no – it certainly hasn’t just suddenly ‘gone’ crazy – in fact the history of the toy business is littered with acquisitions, mergers and however else you might technically describe two companies turning into one! The most obvious example of this would be my ex-employers Hasbro, who have been (historically speaking) magnificently successful in growing by acquisition including Wizards of the Coast (Magic: The Gathering), Waddingtons, Coleco Industries, Tonka Corp. (inc Parker Bros), Cranium, Trivial Pursuit etc…and that’s just one company with only the transactions I can remember off the top of my head mentioned!
The toy industry is in a sense structurally set up for acquisition with it’s preponderance of family founded and owned companies (Hasbro, Mattel & Lego all started as family companies). What often happens with family cmpanies is that not all generations want to take on/are offered the chance to take up the reins to the family business. Somewhere down the line one elder statesman or another decides either his or her offspring aren’t up to it or aren’t interested and reaches for the golden parachute!
So now we’ve established that all this talk is part of an ongoing cyclical process, let’s consider each of this week’s announcements:
Firstly Hasbro/Mattel merger, or Mattel/Hasbro merger to avoid favouritism! Firstly I can state very clearly as an ex-Hasbro employee that there was no love for Mattel within Hasbro corporate culture in my day, which I’m guessing hasn’t changed and I presume (although don’t know for sure) that the same applies back the other way. So why would they consider a merger? Frankly, I don’t know if there’s a legal/fiduciary obligation to make a documented effort to engage or not, but a merger between these two toy industry behemoths would certainly create a monstrously powerful machine, as well as significant ‘synergies’ – that cold hearted overly positively worded way to describe the misery of mass layoffs. The leading player in Girls/Fashion dolls and the leading player in Boys/action figures would make quite a combination…but I can’t see how it’s a likely move bearing in mind the East/West coast locations and the likely resistance to the change. In actual fact I would speculate that a takeover bid would be more likely, as from what my limited understanding of corporate finance suggests, that doesn’t need to be compliant/mutually agreed transaction and both companies could presumably access sufficient funds to make such a deal happen. Yet if that were likely, surely it would have happened when Mattel’s share price was languishing lower than it is now a fw months back? Anyway, I’m sure there will be more rumour to come on that one, but I’d bet against it happening any time soon if I were a betting man!
Onto VTech & Leapfrog…that is one very exciting transaction for VTech, because they both bring their biggest competitor under their own control, but also have an opportunity to significantly leverage up in the North American market where Leapfrog is so strong in terms of trade presence and consumer recognition/affinity. There is no doubt that the explosion in kids tablets presented both companies with a huge sales opportunity, but the question with all technology is always how do you manage the lull between technology waves…seemingly with kids tablet sales appearing to peak/level off, VTech may have managed the waves better. Either way expect to see VTech’s already highly influential position ramp up to new levels in the kids electronics/ELA categories!
PUBLISHERS CAVEAT: Please note any discussion above is not based on any knowledge or insight, is just speculation/opinion and should not be used in any way to influence financial investment decisions…such decisions should only be taken with the advice of qualified experts of which Steve is not one!
by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com, a leading Consultancy to toy companies around the world, which helps companies with product reviews & awards, find the right toy & game factories, consumer research test their products with kids and parents and secure export distribution/market entry around the world.