Children's programming producer HIT Entertainment PLC has struck a deal to expand its television series content with the $275 million acquisition of Lyrick Corp., owner of Barney the dinosaur. The acquisition enhances HIT's portfolio of characters, which includes Bob the Builder, Kipper the Dog, and Angelina Ballerina, and positions the company as a leader in pre-school television programming. HIT, based in London, also produces and distributes videos, publishes books, and licenses merchandise based on its characters. Allen, Texas-based Lyrick, one of the world's largest privately owned family entertainment companies, is run by members of the Leach family Under terms of the acquisition agreement, Dick Leach, founder and owner of Lyrick, will own 9% of the combined company and will serve as a non-executive director on HIT's board. Leach is understood to have rejected acquisition offers from Walt Disney Co. Commenting on the acquisition, Leach said in a printed statement, "HIT is a wonderful company that espouses the same values as we do about creating quality programs for the pre-school market. I feel confident that Lyrick will thrive and prosper within the HIT fold, and look forward to a happy union." Leach's daughter-in-law Sheryl created Barney in the late 1980s. HIT chief executive Peter Orton says that the deal will allow his company to benefit from the relationships that Lyrick has cemented with major retailers, such as Wal-Mart and K-Mart, and Toys R Us, and adds that the acquisition is "the equivalent of a U.K. company getting a passport to the U.S." "We couldn't have created those relationships in 10 years," he states. HIT plans to use Lyrick's knowledge of the U.S. video and toy markets to help generate sales of Bob, Kipper, and Angelina merchandise. With Bob's recent debut on U.S. television, those relationships will be invaluable, Orton says. Bob the Builder, the animated BBC show, airs every day on Nickelodeon, and is now Britain's most successful animated export. "The show made a spectacular television debut recently and received the highest rating ever for a premiere on Nickelodeon. The series has continued in its first few weeks to be among the top two shows on that channel," says Nigel Birrell, head of corporate development and acquisitions at HIT. Demand for Bob merchandise is so great, that Sears is building special "Bob Shops" in 850 of its stores. "The two hottest properties this year are going to be Harry Potter and Bob the Builder," says Birrell. HIT had been very familiar with Lyrick and Barney, Orton remarks, since the company had managed the worldwide distribution of the "Barney & Friends" series between 1993 and 1996. Because his company has successfully penetrated international markets with its own characters, Orton believes that HIT has the know-how to position Barney as a truly global brand. In the past, Barney mostly had been targeted at the U.S. market, and only a small percentage of Barney merchandise sales come from outside of the U.S., he notes. "We recognize that Barney is a U.S. icon, an integral part of almost every American pre-schooler's life, with enormous international appeal," Orton says. "There is probably no pre-school home in America that doesn't have some Barney in it." HIT also plans to use Lyrick's expertise in producing Barney stage shows to help it create a series of Bob the Builder stage productions, and is exploring possibilities for its characters in a new theme park that recently opened in the U.K. Barney currently is in the Universal Studios theme park in Florida. Orton, a veteran of children's TV programming who has stints at the Children's Television Workshop and Jim Henson Co. under his belt, formed HIT Entertainment in 1989. Speaking about the Lyrick deal, his company's first acquisition, he says that he saw a tremendous opportunity to build the leading pre-school studio in the U.S. "That's an important issue, because if you look at Disney, its strongest brand at the moment is Pooh, not Mickey, and Pooh is a pre-school brand. If you think about Sesame Street, Teletubbies, Arthur, and Blues Clues, they are all pre-school characters. We will have Barney, Bob, Kipper, and Angelina, which gives us a strong presence in the pre-school market." As alluring as it might be to acquire a brand as valuable as Barney, Birrell still believes that it is better to create characters than to acquire them. "A company is much better off developing new brands, but it can't create a hit every day. We are very strong on the creative side and have an exciting pipeline, but it also takes a unique strength to acquire what we consider to be one of the top brands in the world. And there are others out there that one would like to have as well, but it's still definitely better to create than to acquire." HIT's product pipeline includes Oswald the Octopus and "Splish, Splash, Splosh," a show that takes place in a bathtub. HIT, which had controlled virtually all of the video, publishing, merchandising, and licensing rights to its properties, began talking with Lyrick last summer about video distribution rights to HIT's characters. Orton says that although Lyrick delivered a compelling presentation on what it could do for his company, he wondered whether HIT would be "giving away" its valuable brands and franchises to a competitor. "We suggested broader talks with Dick Leach, and when he came to London and saw Bob the Builder he said, Bob will the next Barney in America.'" The two companies then began talking about a possible deal. "I think it was the first time that he considered the possibility of doing a deal," Orton says. While Lyrick also produces the "Wishbone" series and owns video distribution rights to several popular properties, HIT's overriding interest in the company, says Birrell, is the Barney brand. "Barney & Friends" is currently one of the most highly rated children's programs in the country. Barney has sold more than 65 million videos, over 100 million books, and over 25 million plush toys. "Barney & Friends" ratings on the national public service network, PBS, have been in the top three for the last eight or nine years. "Even when Teletubbies came into the marketplace, it didn't knock Barney off its important place in the retail market," Orton notes. As attractive as Barney was, Orton says that his company wondered whether the brand would continue to grow over the next several years. But when PBS decided to buy another 40 episodes of "Barney & Friends" and made a commitment to broadcast the show through 2007 and Fisher-Price Inc. made a five-year commitment to develop new Barney toys and games, that confirmed for them that Barney was indeed the valuable franchise that they expected it to be. Says Birrell, "Fisher-Price had produced toys based on Sesame Street characters, such as Tickle Me Elmo, and made a huge success of that. We thought that this relationship was the refreshment for the brand that we needed to prolong the longevity of Barney." Another important aspect of the deal, Birrell believes, is that it broadens the combined company's portfolio, which will prevent over-reliance on any one character. "There are times in the cycle of any brand when you need to take your foot off the accelerator a bit and not push the brand so hard. When you have more than one great property, which we think we have, you can run each brand on a different cycle. That helps from a synergistic point of view," he states.