GAME CHANGER WHY TOY COMPANIES ARE CONSOLIDATING

by BRIAN LEVIN, vice president, Intrepid Investment Bankers; head of the Toys & Giftware practice

TOYMAKERS ARE KNOWN FOR THEIR toys are a driving force in the market is the continue to consolidate in order to compete. creativity, innovation, and ability to con- recent $72 million acquisition of LeapFrog nect families, but did you know that many Enterprises by the world leader in electronic ACQUISITION PRESSURE toymakers are also family-founded and educational toys, VTech Holdings. Leap- When evaluating acquisition opportuni- family-owned? Toy industry giants such as Frog, once a Wall Street darling reaching ties, strategic players are looking for both Lego, Hasbro, and Mattel are—or were at a market capitalization of $2.5 billion at its growth and complementary expertise. Strong one point—family-owned businesses. Each peak, had recently fallen on hard times due public market valuations have put pressure on started with a vision and a great deal of to stiff competition in the electronic learning companies to deliver growth, and many are entrepreneurial drive, and blossomed into the devices segment and less than stellar product seeking acquisitions to deliver that growth. multi-national corporations that are executing launches. The acquisition will help VTech We are seeing buyers that are looking to the large mergers and acquisitions (M&A) that leverage the North American market where acquire companies in specific niches that we see in the industry today. LeapFrog has consumer recognition. It will provide them access to new markets, areas of also help VTech offer a broader range of chil- expertise, or the ability to penetrate deeper TECH TOY CRAZE dren’s educational technology toys, such as into existing channels. In addition, key retail The recently rumored Mattel-Hasbro gaming consoles, smartwatches, and tablets. partners are increasingly looking to reduce mega-merger would have seismic effects We expect to continue to see a large M&A the number of companies they are buying on the toy industry as a whole, but a deal of appetite for these modern toy companies for from, which, in turn, forces further consolida- such magnitude would be nearly impossi- the foreseeable future. tion. Some independents fear that they may ble to consummate for a variety of reasons, Other recent noteworthy acquisitions of be left behind if they do not pursue a transac- including regulatory and anti-trust concerns. iconic businesses and brands include Cardinal tion. With acquisition pressure mounting from Despite the rumblings, both companies have Industries, a leading maker of puzzles and both buyers and sellers, we expect the toy continued to roll up other smaller players in games, and the Etch A Sketch and Doodle industry to remain an active playground for the industry, turning their focus to “modern Sketch brands by Spin Master. In addition, M&A in 2016. » toys.” Recently, Mattel acquired Fuhu Inc., a Ravensburger acquired BRIO, a manufacturer developer of high-technology products for of wooden train sets. Brian Levin has nearly a children and families, and Sproutling Inc., decade of experience focusing a maker of smart technology products for THE RISE OF M&A on mergers and acquisitions and parents and families. These deals show that These acquisitions reflect two strong leverage finance. His selected drones, voice-controlled robots, and app- trends in the market: First, tech toys are transaction experience includes based toys are gaining market share from attracting strong interest in the educational the sale of substantially all of Wild traditional physical play products. These segment, and second, deal volume in 2015 Planet Entertainment Inc.’s assets to Spin Master Ltd. To learn more about M&A innovative toys are providing children with increased 25 percent compared to 2014, with transactions, valuation trends, and other newswor- an engaging play experience that teaches public company valuation multiples in 2015 thy items relevant to companies and investors in the them about engineering, coding, and prob- exceeding the industry average during the toys and giftware space, contact Intrepid Invest- lem-solving. prior five-year period. We believe that M&A ment Bankers at (310) 478-9000. Other evidence that innovative tech activity will continue this year as toymakers

102 THE TOY BOOK | May/June 2016 | TOYBOOK.COM