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Mattel Acquires HIT Entertainment for $680M

24 Oct, 2011 By: Erik Gruenwedel and Chris Tribbey

Deal has unknown impact on Lionsgate, which distributes HIT DVD and Blu-ray Discs for “Thomas & Friends,” “Barney” and “Bob the Builder,” among others

Mattel Oct. 24 said it has entered into an agreement to acquire HIT Entertainment, which has vaunted preschool children’s brands that include Thomas & Friends, Barney, Bob the Builder and Angelina Ballerina.

The $680 million cash deal amounts to more than nine times HIT’s annual pre-tax earnings. HIT, which is owned by a consortium of investment companies, generates about $180 million in revenue annually from toys, games and related DVDs. The deal does not include HIT’s interest in cable network channel Sprout.

The purchase melds Thomas & Friends with Mattel’s iconic brands, including Barbie, Hot Wheels, Fisher-Price and American Girl.

Thomas & Friends generates more than 50% of its annual revenue from non-toy products such as television programming and home entertainment, according to Eric Handler, analyst with MKM Partners.

“The well-known brand … should fit well with Mattel’s global marketing and distribution capabilities,” Handler wrote in a note.

Robert Eckert, chairman and CEO of Mattel, said in an analyst call that the acquisition “fits the bill” with his company’s business plan, and that Mattel will look to expand on the content side of Thomas & Friends, specifically overseas.

“Content is an important component of the Thomas franchise,” Eckert said. “We already know kids entertainment. This year marks the 10th anniversary of Mattel's highly successful Barbie entertainment series, which has grown into 22 chart-topping DVDs, selling 100 million copies.”

“This acquisition also comes at a great time when you consider the number of key licenses within the portfolio that will be coming up for renewal, including the content distribution rights to the Thomas & Friends entertainment franchise, which come up for renewal over the next two to three years in various markets,” said Bryan G. Stockton, COO of Mattel. “That timeline will give us ample opportunity to develop a game plan that maximizes the brand's global reach.”

One of those deals that’s due to come up is for DVD distribution. Lionsgate has distributed HIT Entertainment DVDs since mid-2008. Mattel’s biggest DVD properties are distributed by other studios, with Barbie at Universal Studios Home Entertainment and Hot Wheels at Warner Home Video.

It wasn’t immediately known if the deal has any impact on Lionsgate, which distributes HIT DVDs for Thomas & Friends, Barney and Bob the Builder.

Lionsgate in September released Thomas & Friends: Day of the Diesels in a DVD/Blu-ray/digital copy combo pack, individual DVD and VOD.

Mattel management suggested that HIT programming of the brand (including TV and home entertainment) reaches about 50 million households worldwide. It also is in the process of either adding or dropping brands from content distribution, according to Handler.

“This assessment could take up to 24 months,” he wrote.

A Lionsgate representative was not immediately available for comment.

About the Author: Erik Gruenwedel and Chris Tribbey

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