THE TOY INDUSTRY GOES ACQUISITION CRAZY – BUT WHY?
The last few weeks have seen a flurry of acquisition activity in the global toy industry. In fact, while there have been many individual company sales of comparable or larger companies, I can’t remember so many in such a short space of time!
The question is why have we seen so much activity in such a short space of time?
Well, there are several drivers of this:
Firstly, the usual ebb & flow of business. We do normally see some transactions throughout the year as owner-founders look to move on, albeit the flurry of the last few weeks has been atypical.
Secondly, we’ve just been through the tightest part of the annual cashflow cycle for toy companies. Many toy companies, even the major corporate companies with massive brands, lose money in the first half of the year, as our sales are generally (not always but overall in general) weighted towards shipments to customers in the later part of Q3 and early part of Q4. So if there is going to be an acquisition it is usual for that process to begin towards the end of Q1, with completion towards the end of Q2 or into Q3.
Perhaps the most atypical factor we have in 2018 though is the failure of Toys R Us. From the evidence available in the public domain and from conversations I have had, the big impact is not in lost future sales, because lost future sales can be dealt with via restructuring, cost cutting and increased business with other retailers/new markets. The challenge for some toy companies has been that we as an industry backed our global retail icon Toys R Us because we wanted it to survive in that format. Unfortunately, this goodwill was not rewarded, and many toy companies were left with bad debts from Toys R Us. The one thing that is really hard for a toy company to take is bad debts as the sales represented are planned to be used to cashflow the next cycle. I’m not identifying any particular acqusition target as having been particularly affected by the TRU bad debts, but as a general point clearly this is most likely to be a heavily contributing factor overall!
Finally, the industry dynamic is really interesting right now. There are numerous companies of a certain size that have been in business for decades, but right now seem poised for more growth as they reach a stage in their development and size where acquisition targets become available, as does the cash to fund purchase, while these acquisitions are now too small to be viable for Hasbro & Mattel.
In short, the past few weeks have seen a real flurry of acquisition activity, and it doesn’t look like this activity will be ending any time soon. We’re expecting a few years of consolidation in the global toy industry. Interesting times ahead!
We recently launched a new brand and product management service. Our small team of highly qualified, experienced toy people are now working with toy companies on a project basis to support them where they need flexible resources. We have worked on/Consulted with many top collectable toy brands/products. To find out more, head to our sister company Kids Brand Insight here: http://www.kidsbrandinsight.com/services/
Moreover, while we’re discussing toy industry acquisitions, if you’re looking to buy a toy company or sell one, we can help you find good companies to buy and good people to invest/acquire, just drop us a line!