DT Monday Mommy Mailbag Meets Tuesday Turf War: Our365

First up, some basics: Our365 negotiates with hospitals to be the exclusive on-site photography provider for newborns. It delivers its services, then to "hospital clients and to the consumers, which are new parents," according to one of the company's executives. Our365 was formed over the last three years by a private equity firm, Falconhead Capital, which acquired and integrated four existing in-hospital baby photo companies: two industry veterans, Growing Family [founded in 1947, 1955, or 1965, depending] and Hospital Baby Portraits [founded 1972] and two startups [Baby Prints and That's My Baby, both founded in 2002].

Triathlons, Baby Photos, Mom Jeans
Who is Falconhead? A $500 million, hands-on, lower-market, private equity guy shop. Most guys are from HBS, though there's a token Wharton guy. There's not a token girl from anywhere. They have a long history of working with the sports agency IMG, and they had a piece of ESPN Classic Europe. Now they own Competitor, which runs endurance sports events and publishes triathlon magazines. They also own Not Your Daughter's Jeans--all of which come with their exclusive "Tummy Tuck" design--and now, Our365.com.

Rolling Synergy
Our365 supposedly took shape last year, but there were still hospitals referring to one or the other subsidiaries on their websites as recently as May 2009. Falconhead bought Growing Family in 2006, and the other three firms in 2007. When they first announced the sale of local company, the St Louis Business Journal didn't mention revenues--estimated at $78 million for 2006--or that Growing Family was already owned by two other private equity firms, Sentinel Partners of NY and Nautic Capital of RI, which is run by FleetBank.

Yet a 2005 puff piece in Photo Marketing still has Growing Family founder Ray Harmon in charge, providing excellent service to his network of 2,500 hospitals [including 200 in Canada] and skilfully guiding his company into the new digital age that was just around the corner. So somewhere in 2005-6, Harmon sold his company to some bankers, who promptly flipped it to-- or dumped it on, depending--Falconhead.

In a 2002 tribute to great alumni of Washington University, we learn that Growing Family was thriving; the company had over 80% of the baby market, and $90 million in sales. Also, Growing Family's illustrious history is a series of rollups. First, Harmon bought ous some other Identi-Foto franchises, then he partnered with some fellow First Foto operators to become HASCO International in 1981.

In fact, by 1999, St Louis Commerce Magazine reported, HASCO and Harmon had completed 20 acquisitions and mergers, big and small, and the company was on track to break $100 million in revenues, $14 million of which was kicked back to that their 2,800 hospital clients.

Rollup? Rolldown
Anyone detecting a trend here? Shouldn't revenue be going up every year instead of down? I couldn't find any real info on the other old-timey baby photo company, but as recently as 2005, up to 40% of Growing Family's photographers were still shooting film, which took weeks to process and ship.

I suspect Falconhead's plan for Our365 to combine the all-digital offerings of the startups with the creaky install base of the established players. And to amp up the value capture for the demographic data Our365 provides to their marketing partners, thus ensuring the kid will have a steady stream of special offers waiting for him as soon as he comes home from the hospital.

Said David Solomon, MD at Goldsmith Agio Helms, a boutique M&A firm specializing in direct marketing, who advised Falconhead on the Growing Family acquisition:

Growing Family is unique within the direct marketing world, benefiting from a one-to-one selling relationship created with new parents in the hospital...This transaction provides Falconhead with an exciting platform focusing on this very attractive and hard-to reach demographic.

Here's a quote that pretty much sums it all up, an announcement by Growing Family in 2000 of a partnership with BabyGear.com to add shopping to the company's then-new online baby photo gallery, WebNursery:

"Our representatives talk to more than 3 million moms each year in hospitals around the country, and 90% say they would like their baby's picture taken. In current participating hospitals, more than half of them are now signing up for our WebNursery service, which posts baby's photos online so their family and friends can come to see and enjoy the new bundle from anywhere in the world," said Deb Arpert, Vice President E-Commerce at Growing Family. She expects about 1.5 million baby pictures to be visited on the site within the next 12 months. On average, each photo attracts nine visitors who have compelling reasons to buy gifts. Growing Family's online Gift Center provides all of these visitors the convenience of gift giving right in their own homes or offices at the first moment they want to share in the celebration.

"That's more than 12 million potential users with compelling reasons to send gifts. And with new babies born every day, new consumers continually will be brought to the site," Epstein said. "In a short time, we expect consumer convenience, combined with increasing comfort with online purchases, to help propel sales to unprecedented levels."

The spokespersons for both companies agreed that they each benefited from the partnership.

"Growing Family brings laser-shot, permission-based access to the heart of the marketplace with multiple points of contact while Babygear.com provides unparalleled e-commerce resources and gifting infrastructure," added Arpert.

On the one hand, this is obviously a business which is slated for extinction. Sales revenue and the number of hospital clients have been dropping steadily for years. On the other, it's a classic consolidation play, where the stodgy industry dinosaurs get a product, design, and innovation transplant from the feisty upstarts. It could be enough to keep them alive and cranking out high margin gift products for impressionable, hospital-trusting young families at a very overwhelming moment. Just because Our365 shouldn't exist doesn't mean they can't make a boatload of money before they go.