Jarden's $1.75B Yankee Candle Deal a Slow-Burning Opportunity
NEW YORK (TheStreet) -- Jarden Corp.
Franklin said in a late Tuesday interview with TheStreet that he first began working on a deal for Yankee Candle after being pitched personally as a possible investor by the company's private equity owner Madison Dearborn Partners and its banker Barclays
"What they didn't know was that we had been looking at the company for years," Franklin said of his first discussions about a possible investment in Yankee Candle.
Jarden had been watching Yankee Candle with interest from a distance for many years, according to Franklin. When Madison Dearborn and Barclays were unable to garner a reported $2 billion price for Yankee Candle in a set of auctions, Franklin approached Robin P. Selati, a Madison Dearborn managing director, about a the possibility of a strategic transaction.
The deal that came together is poised to be Jarden's biggest-ever acquisition and it may be a strong indicator of the kind of M&A activity that could happen among private equity firms and Fortune 500 companies in coming years. That is especially the case as PE shops come up against a turn in interest rates and try to exit or monetize their pre-crisis buyout investments.
Competitor private equity firms to Madison Dearborn saw a limited appeal of Yankee Candle at a price tag of about $2 billion, or about 10 times the firm's trailing twelve month earnings before interest, taxes, depreciation and amortization (EBITDA). Jarden, with its near $8 billion projected pro forma annual revenue and strong international marketing and selling channels, however, saw significant value in a slightly lower-priced deal.
"We can bring a lot to the table, merely by
Jarden will be funding the $1.75 billion cash deal for Yankee Candle with a mix of stock, debt financing and cash on hand. The company said on Wednesday it will issue 11,600,000 shares ofcommon stock, with an option for an additional 1,740,000 shares, to finance the stock component of the acquisition.
Even with the stock issuance, Jarden expects its proposed acquisition of Yankee Candle to increase its adjusted earnings per share (EPS) by about 10%, prior to any synergies taking hold. The company also said it expects Yankee Candle to help it increase gross profits and EBIDTA margins in excess of 30% and 13%, respectively.
Jarden's shares surged over 10% in Tuesday trading after announcing the Yankee Candle deal. Shares only pulled back less than 1% to $47.02 in Wednesday trading, after announcing the size of its stock offering.
For Madison Dearborn, Tuesday's deal allows a profitable exit at a transaction price not far below their asking price in auctions pitched to the PE industry. A source familiar with Madison Dearborn's buyout of Yankee Candle said the firm will roughly double its initial investment.
Yankee Candle may be indicative of how corporations and PE firms may come together on deals in the coming year.
Madison Dearborn had considered debt financing as a means to extract additional cash returns from its 2007 buyout; however, a quick surge in interest rates tabled those plans. Prior to its deal with Jarden, the firm considered an initial public offering of Yankee Candle, a divestiture route that is less certain and can take over a year, given the duration of lockup periods for selling shareholders in IPO's.
Jarden saw Yankee Candle as the type of asset that was well managed by its private equity owners and was in a position to be farmed out quickly for increased sales within a larger corporate structure. Yankee Candle, which was publicly traded until its takeover, also already has a long history of financial performance.