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The sale books for Build-A-Bear Workshop, a listed toy retailer, were distributed last week, according to three sources familiar with the process. Missouri-based Build-A-Bear announced in June it hired Lehman Brothers to explore strategic alternatives.
Despite weakening credit markets, the bidders contacted were mostly if not all financial, according to two sources. With Build-A-Bear’s USD 383m market cap, the deal would not likely have the same financing issues as large cap deals, one source explained.
A buy-side source said bidders were valuing the company at around 6X EBITDA in today’s markets.
The company’s 12-month trailing EBITDA is 70.86m, which at 6X is USD 425m. The company’s stock has hovered around USD 17 per share, at the lower end of its 52-week range, with a high of USD 32 per share. Its market cap was USD 532m when the potential sale was announced. However an analyst report today cited Build-A-Bear’s last-minute cancellation of a Susquehanna Financial conference as a sign that “something may be brewing.” Build-A-Bear’s stock was up almost 10%.
An analyst said CEO Maxine Clark, who holds a 13.8% stake, was initially hoping for a sale of high 20s or even low 30s but has likely lowered expectations since the markets fell apart. Clark is interested in monetizing her holdings but is not likely to exit the business, the analyst said.
Another analyst suggested the company sell its UK operations separately if a suitable bid does not emerge for the entire business. He said the UK business is 10% of the 293 company-operated stores and is less profitable. In 2006 the company purchased The Bear Factory Limited, a stuffed animal retailer in the United Kingdom, and Amsbra Limited, its former United Kingdom franchisee for USD 41m.
Alternatively a PE buyer could divest the operations to a franchiser upon purchase, another analyst suggested. The company has 43 franchise locations in Europe and Asia.
The analysts speculated that strategic buyers such as children’s apparel retailers like Children’s Place and Gymboree would not bring much strategic advantage to acquiring Build-A-Bear. Toy manufacturers like Hasbro or Mattel do not have the retail competency to operate such a business, either, they added.
Build-A-Bear is undervalued by the market because of a tough year, said one analyst, yet the company still generates a solid cash flow and could be turned around by a PE buyer.
A previous report by this news service said potential bidders included private equity firms such as Summit Partners, Advent International, Weston Presidio, Golden Gate Capital, Berkshire Partners, Thomas Lee Partners, and Freeman Spogli.
A Build-A-Bear media representative did not return inquiries by press time.
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