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Reports: Michaels Stores Crafting IPO

Reports: Michaels Stores Crafting IPO
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3/27/2012 11:43 AM ET

Arts-and-crafts retailer Michaels Stores Inc. is readying papers to file for what could be among the largest initial public offerings this year in the retail sector, according to published reports. The retailer will be approaching the public market again after it was taken private in 2006 by a private-equity group.

Michaels has reportedly tapped investment banks Goldman Sachs Group, Inc. (GS) and J.P. Morgan Chase & Co (JPM) as underwriters for the IPO. The company plans to file the initial registration statement with the U.S. Securities and Exchange Commission in early April, according to Reuters. Sources later confirmed this to the New York Times DealBook blog.

A group led Bain Capital Partners, LLC and The Blackstone Group, L.P. (BX: Quote) acquired Michaels Stores in October 2006 at $44 per share, a 30 percent premium, for over $6 billion, after being in the public market for twenty-two years since 1984.

Blackstone and Bain collectively own 93 percent of Michaels Stores, and Highfields Capital Management LP owns 6.2 percent of Michaels that it held initially during the sale in 2006.

Michaels Stores is North America's largest specialty retailer of arts, crafts, framing, floral, wall decor and seasonal merchandise for the hobbyist and do-it-yourself home decorator. It generated $4.2 billion in sales in fiscal 2011.

As of March 19, 2012, it operates 1,066 Michaels retail stores in 49 states, as well as in Canada. It also operates 130 Aaron Brothers stores in nine states.

The retailers business is highly seasonal, with higher sales in the third and fourth quarters of the fiscal year. Its fourth quarter, which includes the Christmas selling season, has on average accounted for about 34 percent of annual net sales and about 47 percent of operating income.

A successful IPO for Michaels Stores could again see a slew of private equity firms that will look to exit investments by tapping the buoyant equity markets later in the year. There was a lull in the second half of 2011 after big exits at the beginning of last year, including HCA, Kinder Morgan and Nielsen.

It will also give a push to the pending exit of Bain and KKR & Co LP from Wayne, New Jersey-based retailer Toys R Us Inc., which initially filed for an $800 million IPO in May 2010. Similar to Michaels, Toys R Us was also taken private in a $6.6 billion leveraged buyout in July 2005.

Private-equity firms are currently using public market offerings to pay down debt and reap profits from companies which they bought through leveraged deals during the buyout boom before the financial crisis struck in September 2008.

One of the largest private-equity-backed IPO's last year was that of Nashville, Tennessee-based hospital operator HCA Inc. (HCA), backed by Bain Capital and KKR raised $3.8 billion in March 2011, which is seen as the biggest buyout-backed offering since the financial crisis.

Meanwhile, energy pipeline company Kinder Morgan, Inc. (KMI) raised $2.9 billion in early February 2011, and consumer measurement company Nielsen Holdings (NLSN) also raised $1.6 billion through an IPO in January 2011.

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by RTT Staff Writer

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