Mergers and Acquisitions are Reshaping Toys and Kids' Entertainment

On the show floor of Toy Fair New York (TFNY) last year, rumblings of toy industry consolidation continued to grow for a second year as the industry prepared to face its first full year without a true national toy chain.

Following the show, mergers and acquisitions continued as those rumblings became reality with new announcements made every month. Now, as the industry comes together for another session at the Jacob K. Javits Convention Center, the talks are swirling again, and it’s entirely possible that more mergers, acquisitions, and strategic alliances will have been announced by the time this magazine is in your hands.

Over the past year, at least two dozen notable company consolidations have taken place, and that’s not including the other companies on the fringes of the toy industry. If all of the game makers, tech outfits, and others tethered to the play space were factored in, the list would be far greater.

FORCED CONSOLIDATION

While the reasons vary, the force driving consolidation in the toy industry is largely still tied to the 7-foot giraffe in the room.

“The loss of Toys ‘R’ Us forced many smaller companies to merge in order to survive,” says Isaac Larian, founder and CEO of MGA Entertainment (MGAE). Larian, who acquired Little Tikes in 2006, might be on the hunt for another acquisition after his public offer to merge with Mattel was shot down last year.

While Toys “R” Us is back in a new form, smaller stores cannot make up for the amount of shelf space that the former “big box” model afforded the industry.

Jay Foreman, CEO of Basic Fun!, unveiled new products from company divisions K’NEX and Playhut at Toy Fair New York 2019. Andrew Kelly/AP Images for Basic Fun!

ROLL ‘EM UP

Even before the Toys “R” Us collapse, Basic Fun! CEO Jay Foreman was looking at mergers and acquisitions as a way to create a powerful player in the toy space. After years of attempting to acquire Jakks Pacific, Foreman developed what he calls a “roll-up” strategy.

“I looked at Jakks and decided that if you can’t buy them, build them,” Foreman says. “If I couldn’t buy Jakks Pacific, I decided I could build what would hopefully be a better version of it.”

Foreman rolled The Bridge Direct into Basic Fun!/Good Stuff, acquired Uncle Milton, merged with Tech4Kids, and adopted Basic Fun! as the company name. Over the past two years, the company acquired K’NEX, Geoworld, and Playhut, substantially growing the business with each move.

Meanwhile, Jakks Pacific continues to be a popular takeover target, with offers from Jazwares’ owner Alleghany Capital Corp. and fellow toymaker Just Play reportedly made last year.

GROWING FASTER TOGETHER

When Jakks didn’t bite, Alleghany turned its sights to another toymaker and acquired Wicked Cool Toys (WCT) instead. The move followed a steady string of Jazwares acquisitions, including First Act, Zag Toys, Russ Berrie, and Applause Brands, all of which extended the company’s cross-category reach.

WCT co-presidents Jeremy Padawer and Michael Rinzler praised the combination of Jazwares and WCT, noting that it would “accelerate combined growth potential” and allow the companies “to break new ground together in the toy industry and beyond.”

Wisconsin-based PlayMonster is also growing rapidly by rolling smaller companies and products into its stable. The company — which itself was acquired by Audax Partners in 2018 — most recently acquired Michigan-based Kahootz Toys, the company behind popular, revamped retro toys, such as Spirograph, Colorforms, and its own acclaimed Y’Art brand.

Its biggest acquisition yet is what Chief PlayMonster Bob Wann says is part of the company’s “multicategory growth strategy” to expand the PlayMonster footprint at retail. The company previously acquired Automoblox, My Fairy Garden, Set Enterprises, and others.

GOING BIG TO BECOME AN ENTERTAINMENT POWERHOUSE

The biggest acquisition of last year closed on Dec. 30 when Hasbro officially finalized its deal to purchase Entertainment One (eOne) in an all-cash transaction valued at $3.8 billion. The combined company rolls into its first TFNY under the “We Are One” mantra as valuable preschool properties, such as Peppa Pig, PJ Masks, and Ricky Zoom, join an intellectual property (IP) lineup that includes G.I. Joe, My Little Pony, Transformers, Monopoly, and the Power Rangers — the latter of which made its formal debut as an entirely Hasbro-owned property early last year.

“The businesses are highly complementary, with substantial synergies and a great cultural fit,” says Hasbro Chairman and CEO Brian Goldner. “The addition of eOne accelerates our blueprint strategy by expanding our brand portfolio with eOne’s beloved global preschool brands, adding proven TV and film expertise, and creating additional opportunities for long-term profitable growth.”

The entertainment capabilities of eOne provide Hasbro with the ability to develop its IP across TV, film, and over-the-top platforms, in addition to expansion into music, augmented and virtual reality, and location-based entertainment.

Hasbro’s pairing with eOne may have been a surprise to some, but it’s merely the next evolution for a company that has grown through mergers and acquisitions for decades, notably absorbing Kenner, Tonka, Milton Bradley, Coleco, Wizards of the Coast, and others.

LOOKING FOR INNOVATION

Aside from the financial benefits of combining forces, the overwhelming sentiment is that combined talent has a better chance of creating new toys that kids will love. At every toy fair, there is a lot of talk about innovation, but too often there is stagnation and similarity. The right alliances could change that. According to MGAE’s Larian, “All new innovations have come from small and mid-size toy companies who are willing to take a risk and innovate.”

THE MERGERS AND ACQUISITIONS 2019-2020 SCORECARD (SO FAR)

Think you know all of the mergers and acquisitions that have rippled through the industry in the past year? Here are some notable toy industry combos, along with a few connected players in the agency and entertainment space.