December 13, 2006, 12:00 AM

2006 was a busy year for Top 500 retailer mergers and acquisitions

The booming web retailing market had investors in a mood to snatch up available online merchants in 2006. Among the Top 500 retailers changing hands: Eddie Bauer, Lillian Vernon, Norm Thompson, Provide Commerce and others.

Mark Brohan

Research Director

As 2006 winds down, it will be remembered by Top 500 retailers, investment bankers and others as a memorable year for mergers and acquisitions.

Compared to only a handful of major deals in 2005, this year so far has produced almost 30 mergers and acquisitions involving Top 500 retailers. Among the most active buyers of web and catalog properties in 2006 was Golden Gate Capital, a San Francisco investment banking firm, which acquired Haband Inc., Carabella Corp. and Norm Thompson Outfitters Inc. Along with Sun Capital, Golden Gate Capital also acquired Eddie Bauer.

Among the other Top 100 retailers changing ownership in 2006 were Provide Commerce, No. 56 in the Internet Retailer Top 500 Guide to Retail Web Sites, now a part of Liberty Media; The Sportsman’s Guide Inc., No. 60 in the Internet Retailer Top 500 Guide to Retail Web Sites, which became a part of Redcats in September; and Lillian Vernon, No. 66 in the Internet Retailer Top 500 Guide to Retail Web Sites, which LV Catalog Holding Corp., an affiliate of Sun Capital Partners Inc., a Boca Raton, FL, investment banking firm, acquired in May.

“It was a banner year for mergers and acquisitions among web retailers and direct channel marketers,” says Jim Okamura, senior partner with retail consultants J.C. Williams and Co. “There’s a flood of private equity money coming into the market and investors are looking for under-valued brands they can invest in and grow for a longer period of time. All of this investment activity and deal making speaks well to the health of the web retailing market.”

In general equity firms, investment bankers and others making acquisitions in 2006 were looking for both recognized brands and companies with a solid e-commerce infrastructure. NetShops Inc., No. 120 in the Internet Retailer Top 500 Guide to Retail Web Sites, acquired Thralow Inc., No. 265 in the Internet Retailer Top 500 Guide to Retail Web Sites, for its tightly focused stores that offer specialty products at diverse price points, says NetShops co-founder and CEO Douglas Nielsen. Likewise IAC/InterActive Corp. purchased ShoeBuy Inc. in January for its growing base in the $5 billion online shoes business.

“The acquisitions and mergers we saw in 2006 were by investors who wanted companies with both a high growth direct sales channel and established cash flow,” Okamura says.

With Forrester Research predicting that the web retailing market will generate total sales of about $151 billion in 2007, industry analysts expect the next 12 months to be another active period for mergers and acquisitions. “There is still a ton of private equity money out there that can move into the web retailing market and the fact that many of the top retailers have been posting double-digit growth isn’t being lost on investors,” says LakeWest Group CEO Robert W. Antall. “This is a healthy industry trend.”

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