Art dealer Michaels sells to a private equity giant in a $ 5 billion deal

Art dealer Michaels said on Wednesday he agreed to sell $ 22 billion a share to private equity giant Apollo Global Management in a $ 5 billion deal.

The offer to shareholders represents a 47% premium to a week ago, before speculation of a pending sale raised the share price, Michaels said. The retailer’s board has approved the private deal, which is expected to close in the first half of the year after Apollo’s shares were bought from investors.

The price of the new offer is valued at $ 3.3 billion by the Irving company, which is the largest art retailer.

Michaels said the deal would be funded by 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.

These details have not yet been submitted. Private records’ performance history with leveraged buyouts has not always been a successful formula for retail businesses, as large interest payments and fees eliminated profits and cash needed to invest in the business.

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

After the company received the offer, Michaels chairman James Quella said the board has undertaken a comprehensive process to test the market and evaluate the value-enhancing path forward for shareholders. ‘Directors concluded that the offer was a compelling value for shareholders.

Ashley Buchanan, CEO, joined the company early before 2020. He and the management team have devised a new strategy to drive business during a challenging retail environment, Quella said.

The share price closed at $ 18.02 per share on Tuesday, only $ 1 above the initial share price for public offering in 2014. Shares reached $ 4, or 22%, to close at $ 22.02 on Wednesday. The agreement with Apollo gives Michaels a period of 25 days when he can look at other options if a better offer emerges.

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 building its online business and using its stores for same-day service. Michaels has also focused on customers who are set up manufacturers, both hobbies and people with home businesses who need to buy in bulk.

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

Apollo’s senior partner on retail investments, Andrew Jhawar, said Michaels is the ‘best destination in arts and crafts for the deepest range with the best service in their class.’

“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, expects to leverage many of the strategies from its other investments in specialist retailers and groceries with Michaels.

Sprouts Farmers Market is one of Apollo’s successful investments. Another investment, The Fresh Market, expanded too quickly and had to decline and leave the Dallas market after a year. Other brands he owns include Claire’s, Hostess, GNC and Linens’ n Things, which went bankrupt in 2008 under Apollo’s ownership.

Apollo was also part of an agreement on Wednesday in which the operations of the Venetian casino resort in Las Vegas will be acquired for $ 2.25 billion.

Michaels has been a stock exchange company since 2014 after going through a $ 6 billion leverage deal with private equity firms Bain Capital and Blackstone Group in 2006. It was founded in 1973 in Dallas.

The decision to sell to Apollo comes just a few weeks after rival Joann fabric and crafts made an initial public offering.

Michaels is due to report the results of the fourth quarter on Thursday morning. It is expected to report a profit and an increase in sales of more than 6% for the period including the holiday.

Twitter: @MariaHalkias

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