October 24, 2011 12:40 pm

Mattel buys Hit Entertainment for $680m

Mattel, the toy company famous for its Barbie dolls, has bought Hit Entertainment, the children’s media group behind B ob the Builder and Thomas the Tank Engine, from Apax Partners for $680m.

The purchase of the intellectual property and marketing rights for the pre-school toy brands follows a protracted and complicated auction that officially started in March. Mattel, the world’s biggest toy company by sales, will finance the deal with a mixture of cash and debt.

The $680m price which is equivalent to 9.5 times earnings before tax, interest, depreciation and amortisation, falls below initial expectations. Bankers were talking about a company value of as much as £1bn when plans of the sale first emerged a year ago.

The purchase of Hit will enlarge Mattel’s footprint in Latin America and Asia. Thomas the Tank Engine has become the top-selling pre-school toy for boys in China.

Thomas & Friends is by far the leading performer in Hit’s stable, contributing almost 80 per cent of its profits. Hit’s other brands include Angelina Ballerina, Fireman Sam, Pingu and Barney.

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The sale of Hit does not include the group’s stake in Sprout, a children’s television channel in the US, which Mattel said was “not a strategic priority” for it.

“This transaction will marry Mattel’s global marketing, distribution and brand management capabilities with Hit Entertainment’s global programming and licensing expertise to accelerate growth of the combined portfolio,” said Robert A. Eckert, chairman and chief executive officer of Mattel.

Apax is understood to have made a slight loss on their equity investment in Hit. The sale comes at a critical time for the European buy-out group, which is in the middle of raising its next fund. It has a target size of €9bn ($12.5bn), €2.2bn below its previous fund’s size.

Hit’s revenues are driven mostly by the licensing of its intellectual property. Mattel had already acquired the rights to make some Thomas the Tank Engine toys last year. As other rights deals expire over the next few years Mattel said it would focus on devising a “game plan” for media content related to the brand as well as toys themselves.

The auction, which is being run by Bank of America Merrill Lynch, stumbled recently after investors shied away from media and entertainment companies amid fears of another global economic slump. The deal is expected to close early next year.

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