By Beina Xu
Whichever way you look at it, Savers Inc. is a pretty feel-good
story.
The business, which sells clothing and other merchandise it buys
from charities, is changing private equity hands again, and in a
very sweet deal. TPG Capital, Leonard Green & Partners and
company Chairman Thomas Ellison are buying the business from
Freeman Spogli & Co. in a deal valued in excess of $1.6
billion.
That puts Savers at a multiple of more than 10 times its $140
million in earnings before interest, taxes, depreciation and
amortization, and provides Freeman with over four times its money
upon exit, according to people familiar with the matter.
Freeman Spogli originally acquired Savers from Berkshire
Partners for about $550 million in 2006, when the business had
about $50 million in Ebitda.
TPG and Leonard Green will own equal shares in Savers, totaling
a little more than 40%, while Mr. Ellison's stake will be roughly
equal to the pair at 40% and management will own the balance.
Goldman Sachs Group Inc. (GS) is leading the financing, which
will include a roughly $655 million term loan and $295 million in
mezzanine debt from Crescent Capital Group.
Barclays Bank PLC, Credit Suisse Group and Deutsche Bank AG are
the other participants on the senior debt package, according to
people close to the deal. Moelis & Co. ran the auction process
for Savers.
Kohlberg Kravis Roberts & Co., CVC Capital Partners, Bain
Capital and Advent International were among the earlier bidders,
according to a person familiar with the matter.
The company sent out 12 books, received 11 bids in return, and
selected eight firms to proceed. The lead banker on the deal had
been the original broker when Savers was bought by Berkshire
Partners in 2000.
The auction process was "tightly run," according to Savers
President and Chief Executive Ken Alterman.
After the first round bids, "the field was supposed to narrow,
but it wasn't narrowing because all parties wanted to stay in," he
said. "We went with quite a few firms all the way down to the end.
The difference between one and six was very small, and ultimately
we didn't necessarily pick the highest price."
The idea for TPG and Leonard Green to be co-buyers came from
management; Savers looked at the shared portfolio companies of the
two firms--which include J. Crew Group Inc., Neiman Marcus Group
Inc., Petco Animal Supplies Inc. and David's Bridal Inc.--and did
due diligence with them.
"It was very interesting what the companies had to say about
them, how they yin and yang well together," Alterman recalled.
There were just two rounds of bids.
Savers, with nearly 290 stores and more than $1 billion in
revenue this year, worked on a few key things during Freeman's
ownership. It ramped up its information technology, installing
systems that enabled management to learn from its store operations,
according to Alterman.
"We went from taking a very primitive process of selling used
items to creating more of a retail concept," Alterman said. The
company was able to track activity on the floor as well as at cash
registers. "That took a bunch of money and a lot of time, and we're
still in the early innings on that."
Freeman took no dividends out of the business, and the company
was able to pay down its mezzanine debt and refinance in 2010. It
then acquired 18 stores from Golden Gate Capital-backed Apogee
Retail LLC for $180 million, expanding its mid-Atlantic footprint.
Savers also increased its rate of rotation of merchandise in its
stores, upping it to 30 times per year from the roughly 20 times it
processed when Freeman first bought it.
The deal is expected to close in July. Bingham McCutchen LLP
served as Savers' legal counsel, while Latham & Watkins LLP
served as legal counsel to LGP. Cleary Gottlieb Steen &
Hamilton LLP served as legal counsel to TPG.
(Dow Jones LBO Wire covers buyout and growth equity deals, as
well as private-equity fund-raising and other news of interest to
the private-equity community.)
-Write to Beina Xu at Beina.Xu@dowjones.com. Follow her on
Twitter at @spillthebeins.