Just when you thought it was (almost) time to kick off the sweatpants, log off the Zoom calls and get out of the house again, a $5 billion acquisition of Michaels Stores, the nation’s leading arts and crafts retailer, suggests that at least one corner of the nesting trend may have staying power that outlasts the coronavirus.
In a joint statement on Wednesday (Mar. 3), the Irving, Texas-based owner of nearly 1,300 stores in 49 states said its board had unanimously accepted the unsolicited $22 per share, all-cash buyout offer from New York-based private equity firm Apollo Global Management, in what marked a 47 percent premium from last Friday’s closing price.
While the pricing and metrics of the deal can — and will — be debated, there’s no denying that the timing of the purchase comes on the heels of an unprecedented and historic pandemic-fueled uptick in almost every aspect of home, leisure and daily living activities.
The result has been a spike in demand for everything from sofas and skillets to home gyms, backyard chicken coops and musical instruments, as well as the “arts, crafts, framing, floral, wall décor and seasonal merchandise for do-it-yourself home decorators” that Michaels says it serves.
With the pandemic (hopefully) winding down, the sustainability of that trend has been the source of much attention lately, and what a “return to normal” will do to all those new hobbies and other stay-at-home activities that have helped consumers stay sane over the past year.
Public, Private, Public, Private
The buyout bid also comes at a time when shares of Michaels have just capped off their best year of gains since going public in 2014, having risen more than 60 percent in 2020.
“While demand may drop back a bit in 2021, the crafting market will remain elevated compared to where it was pre-pandemic,” said Neil Saunders, managing director of GlobalData, in an interview with Bloomberg. “Michaels’ new owners — Apollo — will be able to take advantage of this as they look to grow the company’s top line.”
If another suitor does not emerge with a sweeter offer within the next 25 days and the deal closes as planned in the back half of the year, it will mark the second “round trip” for Michaels in the past 15 years. In 2006, the specialty store was bought by Bain Capital and Blackstone Group for $6 billion and taken private, before being re-IPO’d in 2014 at $17 a share — and now, with the stock up only $5 in the past seven years, it is set to de-list and go-private once again.
While the new $22-per-share offer marked a large near-term premium, a long-term comparison to what the previous investment groups paid for the company suggests that Apollo may have actually gotten a good deal.
Jo-Ann’s, Hobby Lobby, Walmart and Amazon
Only time will tell what the new owners intend to do to grow sales, reduce costs and increase profits at Michaels, which has about 12,000 employees — but either way, they will find themselves in a highly competitive marketplace with several hungry, well-funded competitors.
The Michaels announcement comes just three weeks after rival sewing and craft store chain Jo-Ann’s filed paperwork for its own IPO. Although smaller than Michaels, with about 850 stores, Jo-Ann’s is the self-titled leader in the sewing category, among other related niches it serves. According to Jo-Ann’s filing, 30 percent of Americans were sewing or repairing clothes during the pandemic, and it estimates that it controls about one-third of that market via increased omnichannel selling that saw it post more than a 350 percent increase in sales last quarter.
The other large chain in the space is privately held Hobby Lobby, an Oklahoma-based company that now has over 900 stores and has been in business since 1972. Hobby Lobby is unique in the retail space for its decision to keep its stores closed on Sundays and holidays, and has also just announced in October that it is raising its starting minimum wage to $17 an hour.
Michaels also faces massive brick-and-mortar competition from Walmart, as well as intense digital and pricing competition from the likes of Amazon.
On the flip side, Apollo’s big money bet on crafting should bode well for companies like Etsy, which last week reported a 128 percent increase in revenues as its red-hot COVID mask business has proven to be a great source of new repeat customers visiting its marketplace in search of other handmade goods.