Art and craft retailer Michaels sells to private equity giant in a $ 5 billion deal

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

The offer to shareholders represents a 47% premium over the previous week, before speculation of a pending sale raised the stock price, said Michaels. The retailer’s board approved the take-private deal, which is expected to close in the first half of the year after the purchase of Apollo shares from investors.

The price of the new offer values ​​the Irving-based company, which is the largest handicraft retailer, at $ 3.3 billion.

Michaels said the transaction will be financed by 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.

These details have not yet been filed. The history of private equity with its leveraged acquisitions has not always been a successful formula for retail companies, as large payments of interest and fees eliminate the profits and cash needed to invest in the business.

Michaels’ most recent financial statements for October show that he had $ 852 million in cash and a debt of $ 2.48 billion.

As soon as the company received the offer, Michaels chairman James Quella said the board “undertook a comprehensive process to test the market and assess the path to maximizing shareholder value”. The directors concluded that the offer was “an attractive value” for shareholders.

CEO Ashley Buchanan joined the company shortly before the pandemic in early 2020. He and the management team created a new strategy to drive business through a challenging retail environment, said Quella.

The stock price closed at $ 18.02 per share on Tuesday, just $ 1 above its initial public offering price in 2014. The shares gained $ 4, or 22%, closing at $ 22, 02 on Wednesday. The agreement with Apollo gives Michaels a 25-day period so that it can look at other options if a better offer is presented.

The retailer has stores in almost every market – 1,275 stores in 49 states and Canada – but has had trouble growing. During the pandemic, she progressed by developing her online businesses and using her stores for services on the same day. Michaels also focused on creative-minded customers, both enthusiasts and people with home-based businesses at home, who need to buy in bulk.

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

Apollo’s senior retail investment partner, Andrew Jhawar, said Michaels is “the right arts and crafts destination for the widest range of products with the best customer service in the category”.

“We believe there is a significant opportunity to enhance the Michaels brand,” said Jhawar, adding that Apollo, which has $ 455 billion in assets under management, hopes to take advantage of many of the strategies of its other investments in specialty retailers and grocery stores with Michaels .

The Sprouts Farmers Market is one of Apollo’s successful investments. Another investment, The Fresh Market, expanded very fast and had to retreat, leaving the Dallas market after a year. Other retail brands owned by her 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 saw it acquire the Venetian Casino Resort operations in Las Vegas for $ 2.25 billion.

Michaels has been a publicly traded company since 2014, after going through a leveraged $ 6 billion acquisition in 2006 with private equity firms Bain Capital and Blackstone Group. It was founded in Dallas in 1973.

The decision to sell to Apollo came just a few weeks after competitor Joann fabrics and crafts entered an initial public offering.

Michaels is due to release fourth quarter results on Thursday morning. The expectation is for a profit and an increase in sales of more than 6% in the period that includes the holiday.

Twitter: @MariaHalkias

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