Toy Companies Come into Play
By Mark Seavy
Spin Master Corp.’s proposed $950 million acquisition of preschool products supplier Melissa & Doug comes as the toy industry shows an increased appetite for consolidation.
The pace of mergers and acquisitions has been picking up speed for several years. Spin Master has acquired plush supplier Gund, digital games developers Toca Boca and Sago Mini, Rubik’s Cube, and others, while NECA purchased Kid Robot and Rubies Costumes. Acquisitions in general have picked up speed this year.
A week prior to the Spin Master-Melissa & Doug deal, Heathside Trading bought collectibles supplier Quantum Mechanix (QMX) and its stable of Marvel, Avatar, Cowboy Beebop, and Princess Bride licensed products. And that was after Heathside, which also owns the Masters Replicas brand, signed a licensing agreement with MGM for Stargate prop replicas.
The uptick in deals is largely tied to both an infusion of private equity and its accompanying three to five-year horizon for cashing in on its investment and companies seeking to expand into new categories.
Melissa & Doug was purchased by private equity firm AEA Investors in 2017 from founders of Melissa & Doug, Melissa and Doug Bernstein. In the case of QMX, best known for its Q-figs and Zipper Mouth brands, its CEO Andy Gore died in 2022. The company also tightened its relationship this year with Masters Replicas. In the case of collectibles supplier Eaglemoss, a major Star Trek licensee, it fell into bankruptcy in 2021 before some assets were acquired by De Augustini for its Fanhome brand.
“I get calls every six weeks where someone says they are interested in [buying] the company and we kick the tires,” said Julian Montoya, SVP at The Noble Collection, which specializes in prop replicas and has licenses for Harry Potter, Lord of the Rings, Minecraft and others. “I think it’s a combination of investors seeking to make money and get out and there are also opportunities for companies to expand their market.” The latter can give a “company a new customer or distribution channel and you can be much more efficient in buying that rather than building it yourself.”
In the case of Spin Master, Melissa & Doug gives it access to the infant toys business where before its product line started with two-year-olds, CEO Max Rangel said. Overall, Melissa & Doug posted $490 million in sales in 2022 and had launched licensing for the first time with the U.S. National Park Service as well as those for Blue’s Clues. Melissa & Doug will likely broaden its licensing business given Gund’s expansion in the category following its sale to Spin Master.
Forty-two percent of Melissa & Doug’s revenue came from pretend play, followed by developmental toys (20%), arts and crafts (18%), fossils (7%). Ecommerce accounted for 40% of Melissa & Doug’s annual revenue and its major retailers included Target and Walmart, where it is doubling its display space at select stores to eight feet this fall, Rangel said. Specialty retailers were 10% of revenue.
About 75% of Melissa & Doug’s revenue came from products introduced in 2017 and earlier and it has a small amount of international sales, something Spin Master plans to expand through its 26 global offices, Rangel said.
“We believe the opportunity exists for further meaningful growth and expansion within the infant, toddler, and preschool category,” Rangel said. “But to expand our preschool position, we must continually imagine new forms of play to meet the changing demands and desires of parents.”
As companies expand their presence in toys, there’s little sign that the acquisition spree with slow, industry executives said.
“I would certainly see more consolidation and I really don’t see why Mattel and Hasbro couldn’t merge or at least merge parts of their businesses,” said Basic Fun CEO Jay Foreman, whose company has acquired Playhut and K’Nex Industries, the latter including licenses for Hasbro’s Lincoln Log and Tinkertoy brands. “It will be a big challenge [for Spin Master] to manage all those SKUs, accounts, and reps [of Melissa & Doug]. One of the questions will be can they keep the company’s DNA intact?”