Handicrafts retailer Michaels said Wednesday that it agreed to sell to private equity giant Apollo Global Management for $ 22 a share in a transaction valued at $ 5 billion.
The offer to shareholders represents a 47% premium over a week ago, before speculation of a pending sale sent the stock price higher, Michaels said. The retailer’s board approved the private acquisition deal, which is expected to close in the first half of the year after purchasing Apollo shares from investors.
The price of the new offering values the Irving-based company, which is the largest handicrafts retailer, at $ 3.3 billion.
Michaels said the transaction will be financed through a combination of capital provided by Apollo and a debt financing package from Credit Suisse, Barclays, Wells Fargo, RBC Capital Markets, Deutsche Bank, Mizuho and Bank of America.
Those details have not yet been released. Private equity history with its leveraged acquisitions has not always been a successful formula for retail companies, as large interest and fee payments eliminate the profits and cash required to invest in the business.
Michaels’ most recent financial statements for October show he had $ 852 million in cash and $ 2.48 billion in debt.
After the company received the offer, Michaels Chairman James Quella said the board “conducted a comprehensive process to test the market and assess the way forward to maximize shareholder value.” The directors concluded that the offer was “compelling value” for shareholders.
CEO Ashley Buchanan joined the company just before the pandemic in early 2020. He and the management team came up with a new strategy to drive business during a challenging retail environment, Quella said.
The stock price closed at $ 18.02 a share on Tuesday, just $ 1 above its initial public offering price in 2014. The stock was up $ 4, or 22%, to close at $ 22.02 on Wednesday. . The Apollo deal gives Michaels a 25-day period in which to pursue other options should a better offer come up.
The retailer has stores in almost every market (1,275 stores in 49 states and Canada) but has struggled to grow. It made great strides during the pandemic by building its business online and using its stores for same-day curbside service. Michaels also targeted manufacturer-minded customers, hobbyists and home-based businesses alike, who need to buy in bulk.
“As a private company, we will have financial flexibility to invest, expand and enhance our retail and digital platforms,” Buchanan said in a statement.
Apollo Senior Partner on Retail Investments, Andrew Jhawar, said Michaels is the “go-to arts and crafts destination for the widest variety with best-in-class customer service.”
“We believe there is a significant opportunity to enhance the Michaels brand,” Jhawar said, adding that Apollo, which has assets of $ 455 billion under management, hopes to leverage many of the strategies from its other investments in specialty retailers and grocery stores. with Michaels.
Sprouts Farmers Market is one of Apollo’s successful investments. Another investment, The Fresh Market, expanded too quickly and had to back off, leaving the Dallas market after a year. Other retail brands it owns include Claire’s, Hostess, GNC and Linens’ n Things, which filed for bankruptcy in 2008 under Apollo ownership.
Apollo was also part of a deal Wednesday that acquired the operations of the Venetian casino complex in Las Vegas for $ 2.25 billion.
Michaels has been a publicly traded company since 2014 after going through a $ 6 billion leveraged buyout in 2006 with private equity firms Bain Capital and Blackstone Group. It was founded in Dallas in 1973.
The decision to sell to Apollo comes just a couple of weeks after competing fabrics and crafts Joann submitted an initial public offering.
Michaels is scheduled to report fourth quarter results Thursday morning. It is expected to report a profit and sales increase of more than 6% for the period that included the holidays.
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