Arts and crafts retailer Michaels said Wednesday it agreed to be sold 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 to a week ago, before speculation of a pending sale pushed up the stock price, Michaels said. The retailer’s board approved the take-private deal, which is expected to close in the first half of the year after Apollo’s purchase of shares from investors.
The price of the new offer values the Irving-based company, which is the largest arts and crafts retailer, at $3.3 billion.
Michaels said the transaction will be financed through a combination of equity 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 haven’t been filed yet. Private equity’s track record with its leveraged buyouts hasn’t always been a successful formula for retail companies, as large interest payments and fees wipe out profits and cash needed to invest in the business.
Michaels’ most recent financial statements from October show it had $852 million in cash and debt of $2.48 billion.
Once the company received the offer, Michaels chairman James Quella said the board “undertook a comprehensive process to test the market and to evaluate the value-maximizing path forward for shareholders.” Directors concluded the offer was “a compelling value” for shareholders.
CEO Ashley Buchanan joined the company right 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, only $1 above its initial public offering stock price in 2014. Shares gained $4, or 22%, to close at $22.02 on Wednesday. The agreement with Apollo gives Michaels a 25-day period where it can look at other options in case a better offer comes forward.
The retailer has stores in almost every market — 1,275 stores in 49 states and Canada — but has had trouble growing. It made strides during the pandemic by building up its online business and using its stores for same-day, curbside service. Michaels also focused on maker-minded customers, both hobbyists and people with cottage businesses at home, who need to buy in bulk.
“As a private company, we will have financial flexibility to invest in, expand, and improve our retail and digital platforms,” Buchanan said in a statement.
Apollo senior partner over retail investments, Andrew Jhawar, said Michaels is the “go-to-destination in arts and crafts for the deepest breadth of assortment 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, expects to tap many of the 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, expanded too fast and had to retrench, leaving the Dallas market after a year. Other retail brands it’s owned include Claire’s, Hostess, GNC and Linens ‘n Things, which filed for bankruptcy in 2008 under Apollo’s ownership.
Apollo also was part of a deal Wednesday that saw it acquire the operations of the Venetian casino resort 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 weeks after competitor Joann fabrics and crafts filed for an initial public offering.
Michaels is scheduled to report fourth-quarter results Thursday morning. It’s expected to report a profit and a sales increase of more than 6% for the period that included the holiday.