Jazwares’ parent Alleghany Capital Corp.’s acquisition of Wicked Cool Toys is the most recent in a series of deals that continue to consolidate the toy and entertainment industries, with growing impact on the licensing sector.

Within the past year, Hasbro has announced plans to purchase Entertainment One and completed the purchase of Saban Brands; Basic Fun bought K’nex and Spin Master Corp. acquired Gund. Those are just the completed or pending deals, and don’t include such developments as MGA Entertainment’s rejected bid to buy Mattel, and rumors swirling around Jakks Pacific – including a published report last month that Jazwares had submitted an offer to buy it.

And while the toy industry has historically been rife with mergers and acquisition – Hasbro-Kenner and Mattel-Fisher Price being two examples – the pace has quickened with the departure of Toys R Us – a retailer that famously provided a haven for smaller companies and up-and-coming products and properties.

And while many retailers – Party City opened pop-up Toy City locations — added shelf space for toys during the holiday selling season last year in reaction to Toys R Us’ closing, the same trend might not occur this year.

“Toys R Us carried a breadth of product and provided an incubator for many of the small- to mid-size toy companies virtually on a 24/7 basis, something that many of the mass retailers can’t provide” given that most of them cut back product assortments after the holiday selling season, says Gerrick Johnson, Senior Toys and Leisure analyst for BMO Capital Markets.  “Many of the smaller companies have been under financial stress and you have the perfect combination of smaller firms willing to sell and larger companies looking to buy” in order to better compete.

In many cases, the acquisitions provide a means for toy companies to either strengthen or expand their business. Wicked Cool will give Jazwares potential access to its licensing deal with videogame social media influencer Tyler “Ninja” Blevins, known for his success at Fortnite, a property for which Jazwares is a licensee. It also will give Jazwares a revenue stream to protect against the potential loss of its Peppa Pig business now that Hasbro has said it will shift much of Entertainment One’s licensed toy business (Peppa Pig, PJ Masks, Ricky Zoom) to internal design and production. Hasbro also will gain eOne’s production studios to further expand its entertainment business. And Spin Master’s purchase of Gund gave it a means to expand into plush toys.

“Wicked Cool Toys has built an impressive reputation in the industry for spotting on-trend licenses, reinvigorating nostalgic brands, and collaborating with inventors to develop new products,” Jazwares CEO Judd Zebersky said in a statement. Wicked Cool will be a division of Jazwares, headed by is Co-CEOs Jeremy Padawer and Michael Rinzler.

The consolidation also has been partly driven by private equity companies who have invested in the toy business. Alleghany purchased a 77% stake in Jazwares in 2014 and the toymaker has since made a series of purchases, including nostalgia brand Russ Berrie and Zag Toys last year. Basic Fun received an investment from Cathay Pacific in buying K-nex last year and has since also purchased Playhut. And PlayMonster was acquired by Audax Private Equity last November and purchased board game supplier Set Enterprises Inc. in the spring.

“Many of these companies could never afford to make these acquisitions or pursue them as aggressively as they have” without private equity funding, says Johnson.

Contacts:

BMO Capital Markets, Gerrick Johnson, Senior Toy and Leisure analyst, 212-883-5192, gerrick_johnson@bmo.com

Jazwares, Judd Zebersky, CEO, 954-419-7271, judd@jazwares.com

Wicked Cool Toys, Jeremy Padawer, Co-CEO, 310-804-4354, jeremy@wickedcooltoys.com