Dive Brief:
- Franchise Group, the parent company of a portfolio of brands that includes The Vitamin Shoppe and Pet Supplies Plus, will go private in a deal valued at $2.6 billion, the company announced this week. The company will be acquired by Brian Kahn, Franchise Group’s CEO, and other members of the company's senior management team, alongside financial partners including B. Riley Financial and Irradiant Partners, a private equity firm.
- The deal is expected to close in the second half of this year and the group’s current leadership team, led by Kahn, is expected to stay in place. Franchise Group also said it plans to keep its brand portfolio.
- This week, the group also reported Q1 revenue of $1.1 billion, a net loss from operations of about $108 million and adjusted EBITDA of $66 million. Franchise Group also reported $1.4 billion in outstanding term debt. Franchise Group withdrew its financial guidance for 2023 in response to the go-private deal and its first-quarter performance.
Dive Insight:
This week’s announcement affects several retailers with collectively more than 3,000 franchised and company-run stores.
As of Dec. 31, 2022, Franchise Group employed about 8,500 full-time and 5,600 part-time workers. Those people worked at Pet Supplies Plus, Wag N’ Wash, American Freight, The Vitamin Shoppe, Badcock Home Furniture & More, Buddy’s Home Furnishings and Sylvan Learning, according to a regulatory filing.
Kahn said in the acquisition announcement the deal allows the company to deliver value to stockholders “despite a challenging business environment” and it also allows Franchise Group to continue its partnerships “with high-quality franchisees, operators and financial institutions.”
As of the end of last year, Kahn and Vintage Capital Management and its affiliates owned about 40% of Franchise Group’s common stock. “While any future transaction with Mr. Kahn and Vintage or other significant stockholders could benefit us, the interests of Mr. Kahn and Vintage could at times conflict with the interests of other stockholders,” the company said in its most recent 10-K.
As part of this week’s deal, Kahn, B. Riley and Irradiant will acquire 64% of the company’s issued and outstanding common stock that the management group does not already own or control. When the deal closes, the company will stop listing and trading on the Nasdaq.
Franchise Group last year sought to expand its brand portfolio by acquiring Kohl’s through a $9 billion takeover bid. But that deal fell through when Kohl’s rejected a revised offer. Kohl’s said the offer lacked “definitive financing arrangements.”
Although that deal fell apart, it may not have been a good fit from the start, GlobalData Managing Director Neil Saunders told Retail Dive last year. Kohl’s, Saunders said then, needed “a lot of work” to get on the right track. And Franchise Group, Saunders said, did not have the expertise to make the necessary changes. At that time, Franchise Group also carried a heavy debt load, and adding Kohl’s to its fold likely would have exacerbated that issue.
Matt Avril, chairman of the of the board of directors and the special committee of Franchise Group, said the deal is the best outcome for stockholders and gives the company “the flexibility to explore other potential transaction opportunities during the go-shop period under the merger agreement.”
