Jakks Pacific Inc. (JAKK) recently inked an agreement to acquire Hong Kong-based Moose Mountain Toymakers Limited for an undisclosed amount. Moose Mountain is a 15-year old privately held company with a leadership position in the sale and manufacture of sports arcade products, foot to floor ride-ons, tents and safe soft play environments. The transaction is slated to close in the third quarter of 2011, subject to third party approvals and other customary closing conditions.
We view the deal as strategically positive, given that it will expand Jakks Pacific’s business in the faster growing Asian market. Additionally, both companies operate under the same vertical and are expected to derive synergies from the deal. Moose Mountain’s business includes licenses for well-known characters and brands.
Jakks Pacific has been active in inorganic expansion. Following a string of acquisitions over the past several years, Jakks Pacific has emerged not only as one of the top five U.S. players in toys and leisure products, but also as a more diversified consumer products company.
We consider Jakks’ ability to successfully identify, close, and integrate acquisitions to be one of its primary competitive advantages. Jakks management believes that the latest Moose Mountain acquisition complements its wide-ranging product portfolio, particularly its product lines for children.
The company’s other recent acquisitions were that of Tollytots Limited and Kids Only Inc. in 2008, and of Halloween costume maker, Disguise Inc. Jakks is actively looking for accretive and complementary acquisition targets, while focusing on organic growth. The company’s organic growth initiatives include creating new products as well as securing new licenses.
Jakks Pacific competes with LeapFrog Enterprises Inc. (LF) and THQ Inc. (THQI) and currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We have also maintained our long-term “Neutral” recommendation on the stock.
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