It’s official: School Specialty deal called off

Bain Capital and Thomas H. Lee decided to walk away from their $1.5bn School Specialty acquisition. The two sides had been renegotiating after the senior lenders that had originally committed to financing the deal balked at the end of last month.

The $1.5 billion (€1.24 billion) Bain Capital and Thomas H. Lee acquisition of Wisconsin-based School Specialty was officially called off late yesterday. The transaction hit the skids after the senior lenders that committed to the deal pulled back at the end of September, sparking renegotiations that ultimately resulted in each side going their separate ways.

The initial hang-up stemmed from the senior debt syndicate, comprised of Bank of America, JP Morgan Chase and Deutsche Bank, which together had committed to provide $350 million in senior financing.

There were unforeseen circumstances and structural as well as markets-related challenges which led to the mutual termination of the transaction.

Mark Nunnelly, managing director, Bain Capital

According to an 8-K filed with the SEC, the financing group informed the company that it was terminating its agreement on September 30, saying, “Based on information we have received, certain conditions of our obligations under the purchase agreement have not and cannot be satisfied.”

The news has some onlookers questioning if the good times are coming to an end for the industry. Sponsors have been riding a flush debt market in the past couple years, where lender reticence has been rare if not nonexistent. With that said, though, analysts that cover School Specialty’s stock have attributed the about-face to an unexplained downward swing in the company’s performance in August and September.

The sale of School Specialty was first announced at the end of May. Initially, Bain was the sole sponsor in the $1.5 billion transaction, with Thomas H. Lee being introduced to the deal in mid August. According to Moody’s, Bain was to hold a 60 percent stake in the business with Thomas H. Lee covering the balance, and together the investors would contribute $663 million to the deal. The purchase price, at $49 a share, represented a 25 percent premium over School Specialty’s stock price prior to news of the agreement being made public. In September, Moody’s assigned a stable outlook on the company’s debt.

Bain, in a statement, attributed the separation to a confluence of events, hinting at the abandonment of the debt syndicate as well as citing performance issues. “Despite substantial efforts by both parties to move forward with the acquisition, there were unforeseen circumstances and structural as well as markets-related challenges which led to the mutual termination of the transaction,” Bain managing director Mark Nunnelly said.