By and  on May 21, 2007

NEW YORK — The pace of mergers and acquisitions is not slowing down anytime soon, according to investment bankers and analysts.

And while brands will continue to be the main focus of acquirers, particularly in certain sectors such as beauty, some categories such as teen retailers will do better to grow organically, sources said.

"This is an industry that's in play. There isn't a company today in our industry that isn't looking for a strategic solution. They are either looking to be bought or be acquired," explained Allan Ellinger, a senior managing partner at New York-based MMG, an investment banking and strategic advisory practice firm.

"What we see in terms of consolidation in the U.S. is not unique here. Asian wholesalers have similar issues. The second and third generations are owning factories and asking themselves whether they still want to do that. Back then many of these firms made money on quotas and now there are no quotas. They do know that they want to acquire brands and distribution companies," Ellinger said.

According to Alexander Panos, managing director at TSG Consumer Products, "Starting a new brand is very risky. The large firms for the most part are looking and waiting to see what shakes out to find out who the winners are, and then buy those companies. There is a fair amount of competition for the winner."

Panos' firm prefers to invest in companies that have annual volume of over $50 million, with the potential to grow. Earlier this month his firm sold PureOlogy Research to L'Oréal. And while his firm is looking for opportunities in apparel and retail and luxury goods, he has also seen increased activity in the beauty and personal care sector.

"Certain cosmetic companies have had opportunities to buy some of these [up-and-coming] businesses but didn't because they didn't believe in the growth prospects. Now, I compete with some of them all the time for the same businesses. The larger beauty companies are favoring acquisitions with volume north of $100 million. They need the volume to have an impact on earnings. Many have existing businesses that have flat or no growth, or limited growth."

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