Several of these properties are existing Mattel brands, which should provide some cost synergies on the deal as Mattel will now see all sales from these blocks rather than licensing fees.ĭown the road, I think Mattel will be more aggressive at signing deals with Mega Bloks branded after popular characters and upcoming movies. Mega currently has blocks branded after Barbie, Thomas & Friends, Caterpillar, John Deere, NYPD, Dora the Explorer, Smurfs, HALO, Skylanders, Power Rangers, and Hot Wheels. Later in 2014, Mega will release a line of blocks with SpongeBob Squarepants characters and Assassin's Creed characters. In 2013, Mega launched a line of Call of Duty Mega Bloks. Mega has slowly been building its licensing base for Mega Bloks, with several of the announced properties coming later in 2014. Now imagine sales hitting new records every year as new territories are added and its easy to see why Mattel was glad to pay $460 million for the company. In 2013, Mega Brands saw record sales of preschool construction toys. However, with a market share of 85% with a similar product, Lego could see its market share hit, even if only by a few percentage points. This is one possible risk for Mattel and its newly acquired company. Lego is headquartered in Denmark and has a loyal following in Europe. Mattel is present in over 150 countries and should easily be able to expand the brand into new territories. ![]() Consider that Mega Brands had employees in only 17 countries and has a relatively small sales force. Lego reported single digit growth in the United States and United Kingdom, and said it saw double digit growth in other markets like Asia. That is an extremely high total for a company listed as one of the top 15 toymakers in the world. In 2013, Mega Brands saw 70% of its sales come from the United States and Canada. I love this deal for two big reasons: international sales and licensing. The big difference is Kre-O toys are compatible with Lego. The brand has sets revolving around Hasbro properties Transformers, Battleship, G.I. Mattel said construction toys was "the single largest toy category where Mattel does not play." Mattel's big rival Hasbro ( HAS ) recently got into construction toys with its new brand Kre-O launched in 2011. Mega Bloks holds a share of around 10%, which gives Mattel a double digit share and a chance to take Lego head on. Lego, the clear market leader, had an estimated 85% market share. Prior to the acquisition, Mattel had a 1% market share for construction toys. The rivalry has even spawned several lawsuits, where Lego was told it could not trademark an eight piece interlocking brick. Mega Brands' key piece is Mega Bloks, which is the biggest rival to Lego. The company owns brands Mega Bloks, Mega Puzzles, Board Dudes and Rose Art. Last year, Mega Brands posted revenue of $405 million, with $300 million of that total coming from construction toys. Mattel paid a 36% premium to Thursday's closing share price, as Mega Brands shares traded in Toronto. ![]() The acquisition is being done to give Mattel a better spot in the growing construction sets market and also additional space in the arts and crafts category. Mattel will pay for the deal with cash, but will hit the debt market to raise $500 million to maintain its current debt to equity ratio. Mattel is acquiring Canadian based Mega Brands for $460 million, including debt. However, Mattel is now acting at the right time with the popularity of Lego at an all-time high and several upcoming licensed brand sets from Mega Bloks. I say unsurprising because Mattel has several licensing deals with Mega and has been a rumored targeted acquirer of Mega Brands. In a rather unsurprising move, the number one toy maker Mattel ( NASDAQ: MAT) acquired Mega Brands Friday morning. Growing market category approaching $5 billion in total sales.Key existing licensing deals with strong brands.Relatively small market share (10%) with a chance to take on a giant (85%).Several upcoming licensing deals should build sales.Mattel's international presence creates key opportunity.
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