Toys ‘R’ Us demise could spur merger boom in US toy market

The US toy industry looks set for a flurry of mergers and acquisitions between smaller toy makers in the aftermath of the Toys ‘R’ Us bankruptcy, as they seek more scope and negotiating power with big box retailers Target and Walmart.

Smaller toy companies that traditionally relied on Toys ‘R’ Us as a launch platform to sell and promote products, say it is difficult to develop relationships with mass retailers, which now have the country’s biggest toy departments.

They say retailers are increasingly picky about allocating display space, preferring billion dollar well known brands like Mattel’s Barbie and Hot Wheels and Hasbro’s Marvel Superhero action figures.

“If you’re a young brand, it’s hard to be found,” said Shaun Rein, an analyst with China Market Research Group, who covers Asian toy producers.

“A lot of the smaller niche brands that you’d buy because you’d seen (them) while browsing in Toys ‘R’ Us are going to be hit very hard.” With Toys ‘R’ Us out of the picture, retail power has shifted to Walmart, Target and Amazon, said Jackie Breyer, editor-in-chief of industry magazine The Toy Book.

Consolidation helps smaller toy firms get their name out and get products on shelves as they will have a bigger portfolio of products for a mass market retailer to choose from, she added.

The total value of deals in the US toy industry has soared to US$962.7 million since Toys ‘R’ Us filed for bankruptcy on September 19 last year, compared to US$85.4 million in the same period a year ago, according to Thomson Reuters data.

Of the 19 deals in the US toy industry since the bankruptcy, the biggest was Hasbro Inc’s US$522 million purchase of franchises, including Power Rangers and Julius Jr from Saban Properties LLC, the Los Angeles-based firm credited to have launched the “Mighty Morphin Power Rangers” live-action TV show in 1993.

PlayMonster, the maker of the ‘5 Second Rule’ card game, in February bought Kid O Toys, while Canadian toy-maker Spin Master Corp bought plush toy maker Gund for about US$ 79 million.

Spin Master declined to comment, while Hasbro said its acquisition was not because of the retailer’s bankruptcy.

More generally, mergers and acquisitions in the consumer products and staples space have racked up their strongest opening to a year since 2008, with more than US$216 billion spent globally, according to Thomson Reuters data. The total value of deals is up 33.6 per cent over the same period last year.

“Huge game changer”

Collectible toys maker, The Loyal Subjects’ chief executive officer Jonathan Cathey said he has seen an increase in interest since the bankruptcy, and has had at least two potential buyers pursue his California- based company.

Chief executive Officer Jay Foreman of Florida- based toy maker Basic Fun! said talks of consolidation between his firm and smaller players have “easily tripled” since September.

If you’re a young brand, it’s hard to be found. Shaun Rein, China Market Research Group analyst