Michaels Stores. Bain and Blackstone''s 2006 LBO and the long retail hold
Arts and crafts retail navigating Amazon, COVID, and PE dividend extraction
The deal. In October 2006, Bain Capital and Blackstone Group bought Michaels Stores for $6 billion ($44/share). At the time the largest retail LBO. Michaels was the largest U.S. Arts-and-crafts retailer with over 900 stores. The capital structure was approximately 80% debt.
The thesis. Arts and crafts retail had stable consumer demand, defensible market position (specialty stores beat general retailers on assortment), and growth runway through both new stores and same-store sales. The thesis was modest expansion, operational improvement, and either re-IPO or strategic sale.
What they did. Bain and Blackstone invested in store remodels, expanded the in-store classes program (driving traffic and basket size), and made initial e-commerce investments. They navigated the 2008-2010 recession with relatively modest impact (arts and crafts proved counter-cyclical). They executed multiple dividend recapitalizations during the hold period. They re-IPO'd Michaels in June 2014 at $2.5B market cap. Substantially below entry valuation but enough to begin liquidating positions.
The outcome. Apollo Global Management took Michaels private again in March 2021 for $5 billion (during the COVID-era arts-and-crafts boom). Total returns to Bain and Blackstone over the IPO and subsequent share sales were approximately 1.0-1.5x equity over 8-10 years. Modest given the duration. Apollo's subsequent ownership has faced renewed challenges as the COVID demand spike normalized and inflation pressured consumer discretionary spending.
Best practices for VantageOS users. First, peak-cycle retail acquisitions (2006 was peak retail M&A) consistently underperform. Discipline on entry timing matters enormously in cyclical sectors. Second, dividend recapitalizations during the hold can return capital even when the eventual exit underwhelms. For cash-generating businesses, recap discipline can salvage modest deals. Third, retail businesses with classes/community/services (Michaels classes, Lululemon yoga, Apple Today at Apple) build customer engagement that pure-product retailers can't replicate online. These are durable competitive advantages worth investing in.