ZM Capital Completes First Deal

Target: Cannella Response Television

Sponsors: Palladium Capital, VSS Structured Capital, ZM Capital

Price: Undisclosed

Financial Adviser: Seller: Petsky Prunier

In its first deal ever, ZM Capital has acquired Cannella Response Television, a Wisconsin-based broker of infomercial spots. The inaugural transaction comes after the young buyout arm of ZelnickMedia failed in its efforts last fall to acquire media services company Greenfield Online.

ZM Capital brought in Palladium Equity Partners as an equal equity partner to the Cannella Response deal, which was completed on June 16. The buyout included no senior debt and relied instead on mezzanine notes and a small equity slice from VSS Structured Capital II, marking the first investment from Veronis Suhler Stevenson’s second mezzanine fund. ZM Capital contributed equity from its $150 million first fund, ZM Capital LP.

The sponsor firms, all based in New York, purchased privately-owned Cannella Response from its founder Frank Cannella, who is credited as being “The Father of the Infomercial Industry,” according to ZM Capital Managing Member Andrew Vogel. Management, which includes Cannella and CEO Robert Medved, has retained a significant stake. Financial terms of the transaction were not disclosed.

Despite its short history as a firm, ZM Capital won the deal in part because its managing directors had prior experience in the infomercial sector. The firm “went to school” on the direct response television industry through its involvement with Time Life, Vogel said. Parent company ZelnickMedia invested in Time Life in 2003 alongside Ripplewood Holdings, exiting in 2007 when Time Life was sold to Reader’s Digest.

Cannella Response has mostly grown via acquisitions as the direct response television industry is still highly fragmented. Part of the motivation for the sale was that the company desired financial resources to enter new areas, Vogel said. On the organic front, Vogel said the company could expand into short-form infomercials. Currently, Cannella Response’s media sales consist of infomercials of 30 minutes in length or longer.

The company has a large footprint of incumbencies, or control of coveted commercial spots, which made it an attractive target, according to Vogel. The decline in consumer spending has caused a number of advertisers to reign in ad spending, which has worked in Cannella Response’s favor, giving it access to even more spots. ZM Capital also liked the broad audience and measurability of the infomercial business, Vogel added.