As licensing related businesses begin to emerge from the tumult of the pandemic, private equity funding is driving consolidation, particularly among licensees.

Some licensees are readily available after struggling financially as their businesses were hit hard by the chaos of the retail, entertainment and sectors, among many others. On the other side of the equation, companies flush with private equity money were charged with seeking out acquisitions to speed expansion of their businesses.

Moving into New Business
A recent example is Mad Engine, whose owners sold a majority stake to Platinum Equity in January and quickly shifted to a buying mode. That wasn’t out of character for Mad Engine, which had previously purchased apparel licensee Mighty Fine and headwear supplier Neff. But last week Mad Engine announced the purchase of rival Fifth Sun – the first acquisition under the new owner — that moves it into the print-on-demand business for the first time.

At the same time, it also acquired a POD facility in Hebron, KY that will give it a second manufacturing plant for POD apparel and accessories (in addition to Fifth Sun’s operations in Chico, CA).  The deal also potentially gives Mad Engine access to Nintendo, Cuphead and Falcon and the Winter Soldier licenses, further expands its presence at Walmart, Target, Hot Topic and other retailers and returns it to the 1,000-stores Maurices women’s clothing chain, says Mad Engine Chief Merchandising Officer Dean Allen. Mad Engine plans to open additional POD facilities and will expand into POD drinkware later this year.

More Vertical Integration
Another example is sports ecommerce behemoth Fanatics, which raised $350 million in private equity funding last summer, then proceeded to buy distressed apparel/headwear licensee Top of the World. Later in the year, it bought Wincraft, a supplier of sports-licensed flags, banners, pennants, seat cushions and other products whose Chairman and Founder Dick Pope, was seeking to retire after 42 years.

The business distress caused by the pandemic drove some of the interest, and not all deals came to fruition. Said one licensee executive: “While this time last year I did consider making an offer to a quasi-competitor of ours thinking that they might have concerns about the viability of their business, it wasn’t something I actively pursued,” citing the funding required to complete the deal and a need to focus on preserving his own business at the time as reasons for not moving forward.

This is probably only the start of a cycle, says Basic Fun CEO Jay Foreman, whose company has purchased Uncle Milton, K’Nex, Playhut and other toy companies in recent years.

“Now that COVID appears to be behind us, I think we are going to see more companies come to market” to either buy or be acquired, says Foreman. From his perspective, though, “Acquirers are increasingly looking to [companies that own] IP, more than companies that focus on third-party product. Transfer fees and high guarantees for short term deals make these companies less desirable, not to mention the trend to streaming for movies, and lack of new kids’ content.”

Other developments:

• Authentic Brands Group, which formed a partnership with mall operator Simon Property Group to acquire brands and companies, is buying Eddie Bauer from Golden Gate Capital’s PSEB Group. At the same time, it is said to be in the running to acquire Reebok from Adidas.
• Amazon is said to be weighing a bid for MGM in a deal valued at $9 billion. While deal doesn’t involve licensees per se, MGM’s content catalog (i.e. James Bond, Pink Panther, Legally Blonde) does a brisk licensing business.
• Licensing agency LMCA and private equity firm Warburg Pincus are major investors in recently formed Full Sail IP Partners, headed by former LMCA President Alan Kravetz. Full Sail was created to pursue the purchase of corporate brands.