ZM Capital got off to a false start last year, when its first deal as a solo shop — a buyout of media services company Greenfield Online — fell apart.
But the firm, an investment subsidiary of ZelnickMedia, prevailed this week in its acquisition of Cannella Response Television, a Wisconsin-based broker of infomercial spots. ZM Capital brought in Palladium Equity Partners to share the equity load. The deal included no senior debt, but did have mezzanine notes and a small equity slice from VSS Structured Capital II (first investment from Veronis Suhler Stevenson’s second mezzanine fund).
ZM Capital purchased the privately-owned company from its founder Frank Cannella, who is credited with being “The Father of the Infomercial Industry,” according to ZM Capital’s Andrew Vogel. Management, which includes Cannella and CEO Robert Medved, has retained a significant stake. Petsky Prunier advised the seller on the transaction. Pricing terms weren’t disclosed.
The seller chose ZM Capital, despite its youth as a firm, in part because its managing directors had experience in the infomercial sector. The firm “went to school” on the direct response television industry through its involvement with Time Life, Vogel said. Parent company ZelnickMedia made the investment in Time Life in 2003 alongside Ripplewood Holdings. The firms exited the investment in 2007 when Time Life was sold to Reader’s Digest.
Cannella Response Television grew through acquisitions in the highly fragmented direct response television industry, and sought financial resources to enter new areas through both organic growth and acquisitions. For example, the company may expand into short form infomercials, Vogel said. Currently Cannella Response Television’s media sales are limited to 30 minute or longer infomercials.
Cannella Response Television, which brokers media spots to infomercial customers, was an attractive target because the company has a large footprint of incumbencies, meaning it controls many coveted commercial spots, Vogel said. The decline in consumer spending has caused a number of advertisers to reign in ad spending, which has allowed Cannella Response Television to acquire access to more spots. ZM Capital liked the broad audience and measurability of the infomercial business, Vogel said.
I asked Vogel if, as a buyout firm targeting media companies, ZM Capital was interested in the sea of the struggling old media assets on the block. He said the firm had never been interested in the past because “the valuations didn’t make sense.” Now that the assets are distressed, the firm has been looking at debt-driven strategies, including loan-to-own. “Given where the debt is trading and the underlying cash flows, it can be interesting,” he said.