Restoration Hardware agreed last month to merge with an affiliate of private equity firm Catterton Partners. The home furnishings and decor merchant’s chairman/president/CEO Gary Friedman is participating with Catterton Partners in the transaction, which has a total equity value of about $267 million.
Several institutional stockholders of Restoration Hardware have also agreed to invest in the transaction or exchange a portion of their common stock for equity of the purchaser or one of its affiliates.
Calls to Corte Madera, CA-based Restoration Hardware were not returned, but under the terms of the deal, all of the outstanding shares of Restoration Hardware (other than those exchanged by the participating stockholders) will be acquired for a price per share equal to $6.70 in cash. That’s a 150% premium to the closing price of Restoration Hardware common stock on Nov. 7, the last trading day prior to the announcement of the merger agreement.
Private equity acquisitions are now commonplace in the industry, but who is Catterton Partners? Craig Battle, managing director at Princeton, NJ-based investment bank Tucker Alexander, says the Greenwich, CT-based Catterton Partners is trying to make a name for itself. “I know they’re on the hunt in our industry,” Battle says, adding that the announcement of the deal “didn’t surprise me.”
Taking Restoration Hardware private is a wise move for Catterton Partners, Battle says. Restoration Hardware is “a small company to be public with $660 million in sales,” he notes. It can be difficult for a company that size to be concerned about analysts and reporting and all the compliance, he says. “I don’t know what their ownership structure looks like, but this cleans the slate so they can go private.”
Going private would mean Restoration won’t have interference from the marketplace, “and they have deep-pocketed partners,” Battle adds. “It’s a win-win for everybody.” He notes that some of the institutional investors have stayed in, “so they must like what Catterton brings to the table.”
Things are definitely looking up for Restoration Hardware. In fiscal 2006, the merchant’s direct sales increased 52% to $243.6 million, from $160 million in fiscal 2005. Total revenue was up 23%, to $712.8 million from $581.7 million. Same-store sales rose nearly 6%. Net income was $3.3 million, compared with the previous year’s net loss of $29.3 million. Restoration Hardware during fiscal 2006 launched a new brand, Brocade Home, aimed at a younger, female audience, and two spin-off catalogs, Restoration Hardware Outdoor and Restoration Hardware Gifts.