Case study: Acquisition Integration
Linsalata Capital Partners Fund IV, LP invested in Potpourri Holdings, Inc. in October 2002. At the time, Potpourri was a leading catalog house with $120 million in sales spread across 10 titles offering gifts, crafts, hobbies, jewelry and non-fad apparel for a targeted demographic of middle-class women in the 35-55 age group. The collection of titles had been accomplished through the combination of two smaller multi-title houses, but the operations had yet to be integrated. Both legacy headquarters remained – 40 miles apart and there were multiple warehouses, two call centers, two systems platforms and two benefit plans.
LinCap prevailed in an auction process to acquire Potpourri from a private equity sponsor group largely because LinCap accepted the integration challenge. The opportunity to fully realize the benefits of scale and integration were compelling, and LinCap brought relevant operating and acquisition integration experience to the partnership.
The integration effort began immediately upon closing. First, the benefit plans were reconciled to a single, unified offering. The consolidation of the headquarters activities brought all such support under one roof, while the two customer service centers were preserved, but integrated via a single systems platform. Finally, the company constructed a large expansion to its main facility while redirecting inventory flow so as to accommodate growth and the addition of future titles in one state-of-the-art distribution facility. The company also invested in fully developing its Internet site, providing a lower cost, highly effective sales channel and evolving into a multi-channel direct marketer. Indeed, with the infrastructure in place after the first 18 months, the company proceeded with the acquisition of two additional titles, and in both cases enjoyed the full benefits of integrating these titles into Potpourri’s operations.
In May 2005, with revenues approaching $165 million and earnings having increased substantially during the investment, LinCap and management jointly determined that the timing of an exit was appropriate. The company had exceeded its investment growth objectives and the M&A market had become very supportive of multi-channel direct marketing companies. With the integration complete, the platform proven through the successful integration of add-on acquisitions, and the desire of the management team to continue the company with a new buyer, a highly successful auction process was conducted. In the end, the company was sold to a private equity firm who was desirous of taking Potpourri to the next level of success.