Mega Deal

Mega Deal
HA-LO Industries and Starbelly.com, Inc. combine efforts

by Brian Bujdos

First came HA-LO's e-transformation strategy. Then came the big acquisition.

About one month after announcing its intention to evolve into an Internet business-to-business brand marketing leader, HA-LO Industries, Inc., the largest distributor of promotional products in the United States, extended its e-commerce strategy to that sector of the company by signing a definitive agreement to acquire Starbelly.com, Inc.

Starbelly.com is a leading Internet business for custom-decorated merchandise that utilizes sophisticated in-house mass-customization technology. The company's business model includes partnerships with Oracle, Ariba, PurchasePro, Yahoo! and Excite, among others.

The $240-million deal, which HA-LO Chief Executive Officer John Kelly says should close this month, would allow HA-LO to combine its off-line relationships with Starbelly.com's ability to market on the Internet.

HA-LO CEO John Kelly

"At first, I think the salespeople were concerned," says David Woods, HA-LO executive vice president of the promotional products group. "There is always the fear of the unknown. But we've had a series of meetings here (at the Dallas Promotional Products Association International Expo) and I think the enthusiasm in our sales force is building by the moment.

"Right now, we are just in the process of developing the plans to integrate the two companies, and I think the magic will be in the integration. But as always, the devil is in the details."

Starbelly.com, which was founded in March 1999, provides customers with access to dozens of branded apparel and hard-good items that can be imprinted by following a made-on-demand customization model online. In less than one year, Starbelly.com has established more than 100 customized virtual company store sites that allow company employees and customers to purchase logoed items.

The future

What does the HA-LO-Starbelly.com deal mean to the industry?

Many distributors and suppliers say the HA-LO deal certainly was a wake-up call. Like HA-LO, some are exploring, or acting on, the opportunity to unite with a technology-oriented company in order to significantly expand sales. At the very least, companies are realizing the need to increase their Web presence.

"It proves to me that I need to become more Web-based and be more in touch with what's going on with the Internet and with my company on-line," says Adam Cohen, national sales manager for Pencoa. "My line of products has to be more adaptable to being put on the Web. It's another street that I can go down with (HA-LO) in exhibiting and promoting my product line and selling it."

Distributors, whether large or small, whether prominent on the Web or heading in that direction, realize that HA-LO and Starbelly.com make a formidable combination.

"There's no doubt that there is a great amount of power and great versatility that can be arranged by the marriage of an established participant in the industry along with a .com company," says David Hursh, chief operations officer for 4imprint by Nelson Marketing. "The proof of the pudding will be the performance, and that is an interesting avenue for people to pursue."

A Cyrk salesperson out of the Dallas office says his company is not presently being overly aggressive in pursuing a .com company similar to Starbelly.com. Rather, it's making a concerted effort to ensure Web-friendly experiences for its clients.

"We met with our major suppliers in June, and we told them, 'This is what we want you to (be able to offer on your Web site) in 2000, and this in 2001. And we want to be able to go in there and log on anytime and the check status of orders, status of shipping and have all the records right there,'" he says.

"(The suppliers) want input from us also because they are going to be our partners. We had 65 vendors come in this morning (at the Dallas Expo) and talk about what we would like to see from them. They realize that we are going to push more business in their direction if they can do things for us."

Distributors may feel the Internet only will facilitate a trend toward suppliers going direct. But the HA-LO merger, and others such as the recent joining of MadeToOrder.com and Oakland, Calif.-based Harwood Company (a national $17-million advertising specialty distributor), only indicate that distributors must take advantage of the Web any way they can.

"Unless you adopt the Internet as the central core of your business, and unless you are able to move at Internet speed, both as an organization and with the capital in order to compete on the Internet, I do believe it will be difficult to compete," says former Starbelly.com chief executive officer and newly appointed HA-LO president Brad Keywell.

Speaking about the effect the Internet will have on salespeople who are employed by promotional products distributors, Keywell says, "Our model, and the reason of this marriage, is because the Internet leverages salespeople. It doesn't put them out of business. It makes them more effective and more productive."

Woods points out that salespeople can increase earnings while they sleep, or service other accounts, as their clients purchase merchandise at any point of the day, any day of the week.

Terms of HA-LO's acquisition stipulate that Starbelly.com shareholders will receive $19 million in cash, with the balance in newly issued shares of HA-LO common and preferred stock. Starbelly.com will become the promotional products division of HA-LO. Mike Linderman, current president of HA-LO Promotional Products Group, will become president of Starbelly.com. Eric Lefkofsky, co-founder of Starbelly.com, will become HA-LO chief integration officer.

Newly-appointed HA-LO President Brad Keywell

HA-LO Vice President of Marketing Peter Blythe says that his company will begin integrating its clients into the Starbelly.com site once the acquisition is finalized. He said in February that the company was conducting business "as usual."

Distributors agree that one thing to remember is that the distributor-client relationship still will be a key ingredient to the industry as e-commerce evolves, especially when calling on new clients.

"Some products are simple and easy, but a lot of them aren't," the Dallas-based Cyrk salesman says. "I guess if it gets to the point where the company I'm selling mugs to can buy from a Web-based company for 10 cents cheaper a mug than I'm selling it for, there are people out there doing that. And I think there is definitely a market for that out there.

"But it all goes back to having somebody fulfill it. Once a problem comes up, who is going to take care of it? I think somebody still wants somebody to walk in and talk with them, show them ideas, put a package together, those types of things."

Keywell admits that the accessibility of capital and goods does not replace the need for relationships, even though he's very proud to have a plentiful supply of both after the HA-LO deal.

Moving forward, it's up to distributors and suppliers alike to think about how they can remain competitive in the market as the promotional products industry continues to combine a personal touch with the often impersonal touch of a keyboard.

"With our own product line," says Pencoa's Cohen, "we're exclusive. We're molding the product and making it from nothing. When you do that, you don't have to worry about a HA-LO merging with a Starbelly.com. They still have to come to me for the product. With guys who are importing, it's more of a threat because HA-LO has a lot of buying power overseas.

"We've seen the steps that are about to happen and if you're proactive in all of this, you make sure that you secure yourself so that you can't be harmed in such a drastic way."