Boston-based Berkshire Partners and Weston Presidio, which has offices in San Francisco and Boston, have agreed to acquire publicly traded retailer Party City for $360 million (€300 million). The agreement values the company’s stock at $17.50 a share, a 43 percent premium versus the trading price at yesterday’s closing bell.
The acquisition will be made through the pair’s AAH Holdings acquisition vehicle, the same holding company used in the $560 million purchase of party goods maker Amscan in April of last year. The deal is expected to close either by the end of 2005 or near the beginning of 2006, and has already received support from certain shareholders representing 27 percent of Party City’s common stock.
The demographics surrounding the party space seem attractive. People do generally enjoy parties. However, the investors believe Party City’s ability to stretch itself beyond just being a seasonal provider of party goods is what makes this deal attractive.
“Our data suggests consumers are going to continue to throw parties,” Berkshire principal Mike Ascione tells PEO. “But they have more discretionary dollars to spend, and there’s also been a proliferation of products that have been made available, so they can now buy supplies for graduation parties, the Fourth of July, a baby’s first birthday, etcetera. There are more occasions to buy party goods, which has made this more of a year-round type of business.”
Even as Party City will sit next to Amscan under the AAH Holdings umbrella, the two businesses will operate completely separate from each other, and Ascione does not foresee a merger between the two happening anytime soon.
Party City, which controls 249 company-owned stores and 250 franchise locations, reported revenues of roughly $500 million for the fiscal year ended July 2, 2005.
The investors have not yet publicized the debt package for the transaction, although Goldman Sachs and Banc of America have already committed to the financing. The buyers intend to refinance the existing debt package for AAH Holdings, and both Berkshire and Weston Presidio will commit more equity to the platform. Berkshire controls roughly two-thirds of AAH Holding, while Weston Presidio controls approximately a third of the company.
Credit Suisse First Boston advised Party City on the transaction, while Latham & Watkins served as legal counsel to the retailer. The buying group, meanwhile, was advised by Goldman Sachs on the purchase, and Ropes & Gray provided legal advice.
The sale of Party City marks yet another instance of the shakeup taking place in the retail sector. Linens ‘n Things just last week announced plans for a possible sale, while pocketbook maker Kate Spade has reportedly said it will also go on the block. Private equity has already been a major player in retail in the past year, with sales of Toys ‘R’ Us, Niemen Marcus and other big names going to private equity buyers.