Buy, sell or hold: companies use strategic M&As to expand in rough economy.

• Author: Stewart, Heather
• Position: Business Trends - Merger and acquisition

Merger and acquisition activity -- along with every other economic indicator -- took a nosedive as the Great Recession hit. At the peak, in 2007, the total value of M&A activity in Utah was a cool $4.5 billion. Fast forward a few years to 2010, and the total value had dropped to $2.8 billion.

In this still-tight economy, acquisitions are not so much about securing a great exit, or returning value to investors, but instead growing a business and enhancing its value.

Meeting a Demand

The publicly held ZAGG, Inc. made a splash with its line of invisibleSHIELD products. The ultra-thin, scratch-proof film keeps mobile devices in pristine condition. The invisibleSHIELD has been a hit, and the company's revenue nearly doubled from 2009 to 2010 -- and its on track for similar growth in 2011.

With such a great product, ZAGG was somewhat "anti-case," says Brandon O'Brien, CFO. Why should consumers need to carry around their devices in chunky cases when the thin invisible SHIELD film protects just as well -- if not better?

But there was just one problem. The company's website was receiving hundreds of thousands of searches for "case." Many consumers simply wanted a case, despite the benefits of the protective film.

ZAGG was not interested in diverting resources away from its core product to develop a case. Instead, it shopped around for a case company to purchase. And it didn't have to look far: iFrogz, based in Logan, proved to be a complementary brand for ZAGG

"iFrogz has been able to garner some great brandy loyalty and brand strength," says O'Brien. With a line of cases, as well as a line of headphones, iFrogz' products are sold worldwide on the shelves of top retailers like Best Buy and Wal-Mart.

In the acquisition, ZAGG purchased all the outstanding iFrogz stock for $50 million. The deal also included 4.4 million shares of ZAGG common stock, and the company assumed about $5 million of iFrogz' outstanding debt.

The iFrogz customer base is somewhat different from ZAGGs, says O'Brien. While ZAGG has positioned itself as a premium brand geared toward professionals in their mid-20s to 40s, iFrogz appeals to a younger audience of teens and college-age people. The iFrogz packaging features bold, bright colors and unique designs. "They really jump out at you on the shelf," says O'Brien.

In the wake of the acquisition, ZAGG now has a "case" tab on its website. However, iFrogz will continue to operate independently as a division of ZAGG. With differing...