Mattel acquires MEGA Brands

This is not breaking news.  Several weeks ago, Mattel announced that it had acquired MEGA Brands for $460 million.

From all accounts, it seems like a good acquisition for Mattel.  The MEGA Brands acquisition allows Mattel to enter the construction category, which is dominated by Lego.  Mattel should be able to grow MEGA Brands’ share of the construction market.  With strong licensing agreements (including Disney) Mattel will be able to incorporate well-known licensed characters onto MEGA Brands products.

This deal puts Mattel in direct competition with Lego.  Lego has been developing strong licensing partnerships of their own, including a newly inked deal with Twentieth Century Fox for the Simpsons brand.  Lego does have a licensing deal with Disney, but Mattel certainly has more clout with Disney than MEGA Brands did (to be fair to MEGA Brands, they did have some good licenses of their own).  When push comes to shove, would Disney opt to side with Mattel rather than Lego on new properties?

Recent performance at Mattel has not been stellar.  North American sales fell 2% last year, and global sales were up 1%.  However, given Mattel’s impressive annual revenue of $6.5 billion (they sell in 11 hours what we manage to sell in 1 full year), a purchase of this size is a reasonably priced investment given the up-side potential for growth at Mattel.

What does this mean for the toy industry in Canada?

Mattel has stated that they intend to keep the MEGA Brands line operating independently in its current Montreal facilities.  That is good news for employees at MEGA Brands of course, but also for the Canadian toy industry in general.

But Canada is not a cheap place to do business.  MEGA Brands has historically had below-average operating margins.  If Mattel does eventually decide it needs to increase margins from its MEGA Brands division, it may simply incorporate MEGA Brands into to its existing operations.  This goes without saying – that would be bad news to the Canadian toy industry.

MEGA Brands was also the last publicly-traded toy company based in Canada.  Will Canada ever see another publicly-traded toy company?  Of course, the most likely candidate would be Spin Master.  But is this even in the cards for the privately-owned Spin Master?

One thing is for certain - it will be interesting to watch how Mattel manages growth at MEGA Brands.


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