Craft retailer Michaels sells to private equity giant in $ 5 billion deal

Craft retailer Michaels said on Wednesday it had agreed to be sold to private equity giant Apollo Global Management for $ 22 a share in a deal valued at $ 5 billion.

The shareholder offer represents a 47% premium over a week ago, before speculation about an ongoing sale pushed the share price higher, Michaels said. The retailer’s board of directors has approved the private takeover deal, which is expected to close in the first half of the year after Apollo purchases shares from investors.

The price of the new offering values ​​the Irving-based company, which is the world’s largest arts and crafts retailer, at $ 3.3 billion.

Michaels said the transaction would be funded by a combination of equity provided by Apollo and a debt financing program from Credit Suisse, Barclays, Wells Fargo, RBC Capital Markets, Deutsche Bank, Mizuho and Bank of America.

These details have not yet been filed. Private equity’s track record with its leveraged buyouts has not always been a successful formula for retail companies, as large interest payments and fees cancel out the profits and cash needed 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.

Once the company received the offer, Michaels chairman James Quella said the board “had undertaken 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 boost business in a tough retail environment, Quella said.

The stock price closed at $ 18.02 a share on Tuesday, just $ 1 above its initial market price in 2014. The shares gained $ 4, or 22%, to close at 22.02 $ Wednesday. The Apollo deal gives Michaels a 25-day period during which he can consider other options in the event that a better offer is presented.

The retailer has stores in almost every market – 1,275 stores in 49 states and Canada – but has struggled to grow. It made progress during the pandemic by expanding its business online and using its stores for same-day curbside service. Michaels has also focused on concerned manufacturer customers, both hobbyists and people with family home businesses, who need to buy in bulk.

“As a private company, we will have the financial flexibility to invest in, develop and improve our retail and digital platforms,” Buchanan said in a statement.

Andrew Jhawar, Apollo’s Senior Retail Investment Partner, said Michaels was “the arts and crafts destination of choice for the widest range of products with premier customer service. order.

“We believe there is a significant opportunity to improve the Michaels brand,” Jhawar said, adding that Apollo, which has $ 455 billion in assets under management, plans to leverage many strategies from its other investments in specialty retailers and grocers with Michaels.

Sprouts Farmers Market is one of Apollo’s successful investments. Another investment, The Fresh Market, grew too quickly and had to pull out, 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 the ownership of Apollo.

Apollo was also part of a deal on Wednesday that allowed it to acquire the operations of the Venetian Las Vegas casino for $ 2.25 billion.

Michaels has been a publicly traded company since 2014 after suffering a $ 6 billion debt 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 weeks after competitor Joann Fabrics & Crafts filed an initial public offering.

Michaels is due to release its fourth quarter results Thursday morning. It is expected to report a profit and an increase in sales of more than 6% for the period which included the holidays.

Twitter: @MariaHalkias

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