Michaels IPO prices at low end, but Bain and Blackstone get big payday

Customers Shop At A Michaels Craft Store
Employee Nikki Bush stocks acrylic paint at a Michaels Stores Inc. location in Cincinnati, Ohio, U.S., on Monday, Dec. 9, 2013. Michaels Stores Inc. offers arts, crafts, scrapbooking, floral, framing, home decor, seasonal offerings, and children's hobbies, as well as provides photo frames, ready-made frames, art prints, framed arts, art supplies, and custom framing services. Photographer: Luke Sharrett/Bloomberg via Getty Images
Photograph by Luke Sharrett — Bloomberg/Getty Images

After a long wait to return to the public markets, arts and crafts retailer Michaels priced shares in its initial public offering for $17 on Thursday, according to a report by CNBC.

While the pricing is at the low end of the $17-$19 range Michaels had estimated last week, the deal values Michaels at $3.45 billion, and nonetheless represents a windfall for its two largest investors, private equity firms Bain Capital and Blackstone  (BX). Shares will start trading on Friday on Nasdaq.

According to Capital IQ, Michaels was purchased for $5.8 billion in 2006 (plus some optionality). It adds that the leveraged financing was $4.8 billion, meaning $1 billion in equity was put in. At $17 per share, however, the investor group’s stake is worth $2.77 billion. Moreover, the sponsors received a $714 million dividend last year. All told, that it represents a $3.48 billion in current value on a $1 billion investment.

Bain and Blackstone, along with a third major investor, Highfields Capital Management, will still collectively own 85.5% of shares after the IPO (83.4% if underwriters, led by J.P. Morgan  and Goldman Sachs exercise their option to buy shares from the selling stockholders).

The IPO raised $473 million, good enough to make it the largest IPO by a retailer since 2011, when GNC went public. The proceeds will go to pay off notes the company issued last year to finance a dividend for its owners.

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