HIT's impressive growth through the late 1990s was fuelled by the rollout of its preschool franchises, which generated huge profits from the sale of DVDs and toy licences. Despite generating a large majority of their revenues off the screen, companies like HIT were able to offset the risk of creating new content by pre-selling rights to broadcasters around the world. Thanks to its roots in distribution, HIT was able to penetrate key overseas markets like the US and Japan while benefiting from the support of broadcasters in its home market.

Other companies like Entertainment Rights, Chorion and Entertainment One followed HIT's focus on the preschool market model with some success. However, the market has become a lot more challenging. First, the collapse of the home entertainment market damaged a key revenue stream, with 24-hour children's channels replacing the DVD as an electronic babysitter. Toy companies aware of the increasing fragmentation of the children's TV audience also became more cautious about backing TV-related properties. In addition, broadcasters in the UK drastically cut back on children's programme production.

Meanwhile, perhaps, the transition from the classic TV producer business model - one of creating and launching new brands - to a business of managing existing franchises through inevitable peaks and troughs proved too challenging for companies like HIT. Before going private, the company was battered by investors when it suffered the loss of key TV contracts and product delays in the US.

HIT's business has shrunk - annual sales were £166m in its 2006 financial year compared to the £113m reported now by Mattel - and the company's difficulties were exacerbated by of the nature of the loans raised to fund the Apax deal, which were reported to be 'highly syndicated'.

While a range of companies like Walt Disney and Viacom were seen as possible buyers of HIT, the acquisition by Mattel is a good fit. Mattel's Thomas the Tank Engine licences run until 2015 and it generates global sales of $150m from Thomas products. The company will now expect to add licences for wooden products when they expire at the end of 2012. The company will thus immediately economise on its bill for royalties, which totalled $245.9m in 2010. Other licensing partners include Disney (Cars and Toy Story), Viacom (Dora the Explorer, SpongeBob SquarePants) and Warner Bros (Batman, Speed Racer).

Companies like Mattel, its global rival Hasbro and Japan's Bandai have consistently pursued the synergy between children's toys and entertainment content by developing new properties as well as by investing in licences. Hasbro has gone one step further by jointly investing in The Hub children's channel brand with Discovery Communications. HIT's stake in US preschool TV channel Sprout, however, has not been bought by Mattel.