Oriental Trading buys SmileMakers – they sell the novelties you get at the dentist's office

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Posted: Friday, February 21, 2014 12:00 am

Rubber duckies will mix with Barbie toothbrushes, stickers and other happiness goodies this spring when Omaha's Oriental Trading Co. acquires a Spartanburg, S.C., company from office products retailer Staples Inc.

Oriental Trading, a division of Berkshire Hathaway Inc. of Omaha, said Friday it agreed to pay an undisclosed amount of cash for SmileMakers, which got its name from the “treasure chests” of novelties it sells to dentists and other physicians via catalog, phone and online.

Oriental Trading's business model, which includes marketing novelties such as flamingo statues, party decorations and rubber duckies, fits perfectly with SmileMakers' 36-year history of selling products designed to make people smile, said Oriental Trading CEO Sam Taylor.

“It's a great opportunity, a perfect strategic fit,” Taylor told The World-Herald. “We're going to focus over the long term on improving their business. We know we can help it get to the next level and really grow it by giving it more attention.”

The sale should be complete by mid-April.

SmileMakers is part of Quill Corp. of Lincolnshire, Ill., which sells office supplies, furniture and technology products direct to businesses through catalogs and online. Quill is a wholly owned subsidiary of Staples.

In 2002, Staples bought Medical Arts Press, which was the parent company of SmileMakers. Then SmileMakers became part of Quill, but came up for sale last fall. Its product line is not a core business of Staples.

SmileMakers, founded in 1978, originated the treasure chest concept for patient giveaways and added promotional products such as gift bags with toothbrushes, appointment reminder cards and other devices to help build medical practices.

The product line has grown to about 9,000 items and expanded into the education, eye care, consumer and general business markets with products such as child-size furniture for day care centers, classroom prizes and promotional goods.

The company does considerable market research to stay on top of what doctors need to expand their practices, Taylor said. “The key is to make sure the child leaves with a smile on their face.”

SmileMakers has topped Oriental Trading's list of potential acquisitions for a decade because of its success in direct marketing. Oriental Trading competes for some sales, but not many, he said.

He would not disclose SmileMakers' revenue or profit figures but said the company employs about 135 people. Oriental Trading has annual sales of more than $500 million, lists more than 50,000 different items and employs about 1,800 people in Omaha.

Taylor said there would be no immediate job impact in Omaha or in Spartanburg. Once the acquisition is complete, he said, the first step will be to shift SmileMakers' information technology and back-office functions from Staples to Oriental Trading.

Both businesses are small in relation to their parent companies, Taylor said, so the undisclosed purchase price is not significant on a corporate scale.

“But for Oriental Trading, this is a significant acquisition,” Taylor said. “We think we can create a lot of value for Berkshire shareholders.”

The purchase will come from Oriental Trading's cash flow and is the second since it was acquired by Berkshire in 2012. Last June, Oriental Trading bought MindWare Holdings, a suburban Minneapolis company that creates, wholesales and sells educational games, toys and books.

MindWare's shipping operation has been shifted to Oriental Trading's Omaha warehouse, but SmileMakers will maintain its shipping division in Spartanburg, as well as a fulfillment center in Ajax, Ontario, near Toronto.

Taylor said SmileMakers has the three elements that make a good business: a strong, experienced management team; protection from competitors through strong brands, unique products and faithful, satisfied customers; and a business model with high profit margins, year-round revenue and noncyclical sales.

SmileMakers' executives average 24 years in the direct sales business and 13 years with the company. It is the leader in the medical and dental market, much larger than its nearest competitors.

About one-third of its products are exclusive and make up about half its sales, which Taylor said protects against competition. Sales continued on track during the recent recession, making its financial returns stable.

Some of Oriental Trading's products might sell to SmileMakers' customers and vice versa, he said. And Oriental Trading's expertise with websites, email marketing and other online components may apply to SmileMakers.

Online sales make up about a third of SmileMakers' sales but more than 75 percent of Oriental Trading's. SmileMakers takes 50 percent of its orders over the telephone, and some by regular mail.

“We've been doing online sales longer and at a bigger scale,” Taylor said. Combining the companies also means cost advantages with catalog printers, shippers, product suppliers and others.

Oriental Trading can gain from SmileMakers' presence in Canada, which accounts for about 10 percent of its sales. Oriental Trading had pulled back from the Canadian market during the recession.

Oriental Trading wants to acquire other direct marketing companies, as well as grow from within, Taylor said.

The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.

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