“Thomas the Tank Engine,” “Bob the Builder” and “Barney” (the dinosaur) and the other children’s brands owned by HIT Entertainment are all going to Mattel. The purchase price of $680 million in cash is being called 9.5 times EBITDA by Mattel.
The deal announcement gave a boost to Mattel’s stock and Fitch quickly affirmed its investment grade “A-” rating on Mattel’s debt. “Fitch Ratings notes that the acquisition is not expected to have more than a modest impact to Mattel’s more than $6 billion in revenues but should help the bottom line as HIT’s licensing-based business would carry higher EBITDA margins than Mattel’s average. Further, as the intellectual property owner, Mattel can provide the related toys for other expiring licenses,” the ratings agency said.
“Mattel is the right home for Thomas & Friends. This powerhouse brand is joining the ranks of such iconic brands as Barbie, Hot Wheels, Fisher-Price and American Girl,” said Robert A. Eckert, chairman and chief executive officer of Mattel. “Thomas & Friends routinely ranks among the world’s leading preschool toys. Additionally, with more than half of the Thomas & Friends revenue generated from non-toy products, this transaction will marry Mattel’s global marketing, distribution and brand management capabilities with HIT Entertainment’s global programming and licensing expertise to accelerate growth of the combined portfolio.”
“HIT Entertainment owns some of the most loved and trusted preschool brands in the world and under Mattel’s leadership, I look forward to seeing them grow to even greater heights,” said Jeffrey D. Dunn, president and chief executive officer of HIT Entertainment. “Mattel is a wonderful steward of brands and a great home for the outstanding properties HIT has developed and grown, including Thomas & Friends. It is fitting that the world’s premier toy company should become the owner of the world’s premier pre-school property.”
Mattel currently markets many Thomas & Friends® toy products under a license from HIT Entertainment which extends through 2014. Mattel’s global sales of Thomas & Friends die-cast and plastic toys are more than $150 million, and Mattel believes that this transaction will allow the company to continue to expand and grow these product lines into the foreseeable future. Another key advantage to the acquisition is that Mattel will be able to reunite two key pieces of the Thomas & Friends toy business: plastic and die-cast toys with the wood-based business. The current wood license expires at the end of 2012, at which time Mattel expects to add that line of business to its portfolio. Historically, the sales of wood-based toys have been around half the size of the plastic and die-cast business, the company said.
And, of course, many of those HIT properties have TV and video products moving to Mattel. “We work in a creative business and understand the value of strong and talented leaders, teams, and people. HIT Entertainment has a great talent base with strong competencies in content production, management and licensing. The addition of the HIT Entertainment team will complement our licensing business and also augment our capabilities on the content side,” said Eckert.
Not included in the deal to buy HIT Entertainment from a consortium led by Apex Partners funds is HIT’s stake in the preschool channel Sprout.
RBR-TVBR observation: Even people who don’t have kids will recognize most of these brand names. In our view, the great thing about preschool brands is that they can be constantly refreshed and sold to the parents of each generation of new children. They don’t wear out for a very, very long time.