Acquisition is highly strategic and
complementary, expands Spin Master's offering in toys for early
childhood play, is a compelling use of balance sheet capacity and
is immediately accretive to EPS
All references in US$, unless otherwise noted
TORONTO, Oct. 11,
2023 /CNW/ - Spin Master Corp. ("Spin Master" or the
"Company") (TSX: TOY), a leading children's entertainment company,
today announced it has reached a definitive agreement to acquire
U.S.-based Melissa & Doug, a well-recognized and trusted brand
in early childhood play, for $950
million in cash. The acquisition will bolster Spin Master's
position as a leader in the children's entertainment industry and
will bring complementary capabilities in early childhood toys by
adding Melissa & Doug's high-quality offerings of open-ended,
creative, and developmental wooden toys.
With a mission to ignite imagination and a sense of wonder in
children, Melissa & Doug has developed into a beloved brand of
high-quality, sustainable, and learning-enriched play that is
sought after and trusted by parents and children alike. The
addition of Melissa & Doug will strengthen Spin Master's
offering by adding complementary early childhood products and
further diversify its portfolio across new channels and
formats.
"What excites us so much about Melissa & Doug is the power
of their brand, their deep knowledge in developmental play and
their passion for creativity, imagination and sustainability," said
Max Rangel, Spin Master's Global
President and CEO. "As a trusted brand of early childhood toys with
an evergreen portfolio, Melissa & Doug will expand Spin
Master's presence in new categories, providing immediate revenue
growth, broader reach in all retail channels and market coverage.
The addition of Melissa & Doug is highly complementary and
connects with our strategic vision to reimagine everyday play,
providing a compelling platform for long-term growth through
innovation, while also meeting the changing demands of children and
parents of the future."
"Throughout our 35-year history, Melissa & Doug has helped
ignite children's imaginations by fostering open-ended, sustainable
play," said Melissa & Doug
President and CEO, Fernando
Mercé. We are confident that by working together with Spin
Master, we will be able to reach more families, inspire more
imaginations and unlock greater growth potential."
"We have an incredible history of pursuing accretive
acquisitions to propel our growth as a company and have become
trusted stewards of many renowned and beloved children's brands,"
said Anton Rabie, Spin Master's
Co-founder. "With this acquisition, we are committed to preserving
the essence of what Melissa & Doug represents for families and
are confident that our investment will enable us to accelerate
growth and build upon our legacy as a leader in the children's
entertainment industry now and into the future," added Ronnen Harary, Spin Master's Co-founder.
Strategic Benefits - Expands Spin Master's Offering in
Children's Play and Entertainment
- Trusted brand of high-quality open-ended, creative, and
developmental toys
- Highly relevant for modern parents seeking sustainable wooden
toys and screen-free play
- Significant growth opportunities through innovation
- Bolsters preschool play presence in the earliest childhood
years
- Recurring, evergreen product portfolio with diverse revenue
base
- Expands reach in specialty retail and e-commerce channels with
potential for growth in mass retail and international
expansion.
Financial Benefits - Creates Opportunities for Accelerating
Long-Term Profitable Growth
- Attractive brand portfolio of $489
million in revenue1 in 2022.
- $950 million purchase price
represents a transaction multiple of 10.5x 2022 Adjusted
EBITDA2, pre run-rate cost synergies, and 8.1x 2022
Adjusted EBITDA2, including run rate cost
synergies2;4.
- Potential for run-rate cost synergies of approximately
$25 million - $30 million, expected to be achieved by
2026.
- In 2024, immediately accretive to earnings per share ("EPS"),
pre run-rate cost synergies. Mid-teens accretive to EPS, including
run rate cost synergies4.
- Strategic deployment of balance sheet with projected Net
Leverage3 below 1.0x Adjusted EBITDA2 at
closing, providing ongoing financial flexibility for strategic
initiatives and potential future acquisitions.
Transaction Details
Spin Master plans to finance the $950
million purchase price with approximately $450 million balance sheet cash and $500 million in debt financing. Additional
contingent earnout consideration of up to $150 million is subject to achieving certain
financial targets for 2024 and 2025. The earn out payments are
scaled linearly to Melissa & Doug's gross profit outperformance
compared to a target for each year. There will be no earnout
payments if Melissa & Doug does not reach the target
threshold. The earn out payments, if any, will be funded via
cash generated from ongoing operations.
The Company remains committed to its quarterly dividend and
opportunistic use of its Normal Course Issuer Bid. The transaction
has been approved by the Boards of Directors of each of Spin Master
and Melissa & Doug and is subject to the receipt of certain
regulatory approvals and customary closing conditions. The
acquisition is expected to close early in the first quarter of
2024.
Advisors
Evercore Group LLC, RBC Capital Markets and TD Securities are
serving as financial advisors to Spin Master and Torkin Manes LLP
and Pillsbury Winthrop Shaw Pittman LLP are serving as its legal
counsel. Harris Williams & Co is
serving as financial advisor to Melissa & Doug and Fried,
Frank, Harris, Shriver & Jacobson LLP are serving as
its legal counsel.
(1) Estimated IFRS
revenue based on 2022 Audited Financial Statements (US
GAAP)
|
(2) Non-GAAP financial
measure or ratio. See "Non-GAAP Financial Measures and
Ratios"
|
(3) Net Leverage is
defined as consolidated Debt (debt financing from existing and
incremental credit facilities) less Cash.
|
(4) Mid-point of run
rate synergies range
|
Investor Conference Call
Spin Master will conduct a conference call to discuss the
information included in this news release and related matters
on October 11, 2023 at 9:30 a.m. (ET). The call-in
numbers for participants are (416) 764-8650 or 1 (888) 664-6383. A
live webcast of the call will be accessible via Spin Master's
website at http://www.spinmaster.com/events.php.
Following
the call, both an audio recording and transcript
of the call will be archived on the same website page for 12
months. To access the accompanying presentation slides, please go
to www.spinmaster.com/investor relations.
Spin Master will host its previously scheduled Third Quarter
2023 financial results conference call on November 2, 2023 at 9:30am
(ET).
Investor Inquiries
Sophia Bisoukis, VP Investor Relations: sophiab@spinmaster.com
Press Conference
Spin Master will conduct a press
conference to discuss the information included in this news release
and related matters on October 11, 2023, at 11:00 a.m.
(ET) at Spin Master head office (225 King St W #200, Toronto, ON M5V 3M2). Media are invited to
attend in-person or attend virtually, register at:
https://spinmaster.zoom.us/webinar/register/WN_6RP765lgRNKITJhAX0Fa7g#/registration.
Media Inquiries
Jasmine
Lagundzija, Jasmine.Lagundzija@crestviewstrategy.com, (519)
217-1245
About Spin Master
Spin Master Corp. (TSX: TOY) is a
leading global children's entertainment company, creating
exceptional play experiences through its three creative centres:
Toys, Entertainment and Digital Games. With distribution in over
100 countries, Spin Master is best known for award-winning brands
PAW Patrol®, Bakugan®, Kinetic Sand®, Air Hogs®, Hatchimals®,
Rubik's Cube® and GUND®, and is the global toy licensee for
other popular properties. Spin Master Entertainment creates and
produces compelling multiplatform content, through its in-house
studio and partnerships with outside creators, including the
preschool franchise PAW Patrol and numerous other
original shows, short-form series and feature films. The Company
has an established presence in digital games, anchored by the Toca
Boca® and Sago Mini® brands, offering open-ended and
creative game and educational play in digital environments. Through
Spin Master Ventures, the Company makes minority investments
globally in emerging companies and start-ups. With over 30 offices
in close to 20 countries, Spin Master employs more than 2,000 team
members globally. For more information visit spinmaster.com or
follow-on Instagram, Facebook and Twitter @spinmaster.
About Melissa & Doug
Timeless Toys. Endless
Possibilities.
From classic wooden toys to crafts and
pretend play, Melissa & Doug products provide a
launch pad to ignite imagination and a sense of wonder in all
children so they can discover their passions and their purpose.
Recognized by parents as a highly rated early childhood brand for
wooden and sustainable toys, Melissa & Doug is committed to its
vision of making timeless, sustainable toys for a thriving and
inclusive world. Melissa & Doug is proudly partnering with the
American Academy of Pediatrics to foster early brain development
and to champion the health benefits of open-ended play through
their joint Power of Play alliance.
Forward-Looking
Information
Certain statements, other than statements of historical fact,
contained in this press release, may constitute "forward-looking
information" within the meaning of certain securities laws,
including the Securities Act (Ontario), and are based on expectations,
estimates and projections as of the date on which the statements
are made in this press release. The words "plans", "expects",
"projected", "estimated", "forecasts", "anticipates", "indicative",
"intend", "guidance", "outlook", "potential", "prospects", "seek",
"strategy", "targets" or "believes", or variations of such words
and phrases or statements that certain future conditions, actions,
events or results "will", "may", "could", "would", "should",
"might" or "can", or negative versions thereof, "be taken",
"occur", "continue" or "be achieved", and other similar
expressions, identify statements containing forward-looking
information. Statements of forward-looking information include,
without limitation, statements with respect to: the acquisition of
Melissa & Doug, including the terms, cost, expected sources of
funding and timing for completion thereof, the strength,
complementarity and compatibility of Melissa & Doug's business
with the Company's existing business; the impact of the acquisition
on the Company's position in the children's entertainment industry
and preschool market, diversification of the Company's portfolio
across new channels and formats, expansion into new categories and
internationally, projected financial results of the Company and
Melissa & Doug, including expected impact on EPS, net leverage
to Adjusted EBITDA ratio, synergies (and timing thereof), revenues,
leverage, balance sheet and free cash flow, the potential for
future growth and innovation, further investments and/or subsequent
acquisitions, future dividends and share buybacks.
Forward-looking statements are necessarily based upon
management's perceptions of historical trends, current conditions
and expected future developments, as well as a number of specific
factors and assumptions that, while considered reasonable by
management as of the date on which the statements are made in or in
respect of this press release, are inherently subject to
significant business, economic and competitive uncertainties and
contingencies which could result in the forward-looking statements
ultimately being incorrect. In addition to any factors and
assumptions set forth above in this press release, the material
factors and assumptions used to develop the forward-looking
information include but are not limited to: applicable regulatory
approvals and other customary closing conditions to the acquisition
will be satisfied, and consummation of the transaction will occur
in a timely manner; internal cash flow projections will be as
expected in order to finance, in part, the acquisition with cash on
hand; the Company will be able to incur further indebtedness as
expected and on an economical basis to finance, in part, the
acquisition; the Company will be able to successfully integrate the
acquisition; the Company will be able to successfully expand its
portfolio across new channels and formats, and internationally;
achieve other expected benefits through this acquisition;
management's estimates and expectations in relation to future
economic and business conditions and other factors in relation to
the proposed transaction and resulting impact on growth in various
financial metrics; the realization of the expected strategic,
financial and other benefits of the proposed transaction in the
timeframe anticipated; the absence of significant undisclosed costs
or liabilities associated with the proposed transaction; Melissa
& Doug's business will perform in line with the industry; there
are no material changes to Melissa & Doug's core customer base;
implementation of certain information technology systems and other
typical acquisition related cost savings; the Company's dividend
payments being subject to the discretion of the Board of Directors
and dependent on a variety of factors and conditions existing from
time to time; seasonality; ability of factories to manufacture
products, including labour size and allocation, tooling, raw
material and component availability, ability to shift between
product mix, and customer acceptance of delayed delivery dates; the
steps taken will create long term shareholder value; the expanded
use of advanced technology, robotics and innovation the Company
applies to its products will have a level of success consistent
with its past experiences; the Company will continue to
successfully secure broader licenses from third parties for major
entertainment properties consistent with past practices; the
expansion of sales and marketing offices in new markets will
increase the sales of products in that territory; the Company will
be able to successfully identify and integrate strategic
acquisition and minority investment opportunities; the Company will
be able to maintain its distribution capabilities; the Company will
be able to leverage its global platform to grow sales from acquired
brands; the Company will be able to recognize and capitalize on
opportunities earlier than its competitors; the Company will be
able to continue to build and maintain strong, collaborative
relationships; the Company will maintain its status as a preferred
collaborator; the culture and business structure of the Company
will support its growth; the current business strategies of the
Company will continue to be desirable on an international platform;
the Company will be able to expand its portfolio of owned branded
intellectual property and successfully license it to third parties;
use of advanced technology and robotics in the Company's products
will expand; access of entertainment content on mobile platforms
will expand; fragmentation of the market will continue to create
acquisition opportunities; the Company will be able to maintain its
relationships with its employees, suppliers, retailers and license
partners; the Company will continue to attract qualified personnel
to support its development requirements; the Company's key
personnel will continue to be involved in the Company products and
entertainment properties will be launched as scheduled; and the
availability of cash for dividends and that the risk factors noted
or referenced below, collectively, do not have a material impact on
the Company.
By its nature, forward-looking information is subject to
inherent risks and uncertainties that may be general or specific
and which give rise to the possibility that expectations,
forecasts, predictions, projections or conclusions will not prove
to be accurate, that assumptions may not be correct and that
objectives, strategic goals and priorities will not be achieved.
Known and unknown risk factors, many of which are beyond the
control of the Company, could cause actual results to differ
materially from the forward-looking information in this press
release. Such risks and uncertainties include, without limitation,
risks relating to the inability to successfully integrate the
Melissa & Doug business upon completion of the proposed
transaction; the possible delay or failure to satisfy the
conditions to the closing of the proposed transaction; the risk
that the proposed transaction may not be completed in a timely
manner, or at all; the potential failure to obtain the regulatory
approvals in a timely manner, or at all; the Company's failure to
obtain adequate funding for the acquisition on acceptable
terms; the occurrence of any event, change or other
circumstance that could give rise to the termination of the
definitive agreement; the potential failure to realize anticipated
benefits from the proposed transaction; concentration of
manufacturing and geopolitical risks; uncertainty and adverse
changes in general economic conditions and consumer spending
habits; and the factors discussed in the Company's disclosure
materials, including the annual or subsequent, most recent interim
management's discussion and analysis and the Company's most recent
Annual Information Form, filed with the securities regulatory
authorities in Canada and
available under the Company's profile on SEDAR+
(www.sedarplus.com). These risk factors are not intended to
represent a complete list of the factors that could affect the
Company and investors are cautioned to consider these and other
factors, uncertainties and potential events carefully and not to
put undue reliance on forward-looking statements.
There can be no assurance that forward-looking statements will
prove to be accurate, as actual results and future events could
differ materially from those anticipated in such statements.
Financial outlook included in such forward-looking statements is
provided for the purpose of providing investors with information
about management's expectations and plans relating to the future,
including the expected performance of the Company and Melissa &
Doug and investors are cautioned that the information may not be
appropriate for other purposes. The Company disclaims any intention
or obligation to update or revise any forward-looking statements
whether as a result of new information, future events or otherwise,
or to explain any material difference between subsequent actual
events and such forward-looking statements, except to the extent
required by applicable law.
Non-GAAP Financial Measures and
Ratios
In addition to using financial measures prescribed under
International Financial Reporting Standards ("IFRS"), references
are made in this Press Release to the following terms, each of
which is a non-GAAP financial measure:
- Adjusted EBITDA
- Adjusted EBITDA, pre run rate cost synergies
- Adjusted EBITDA, including run rate cost synergies
Non-GAAP financial measures do not have any standardized meaning
prescribed by IFRS and therefore may not be comparable to similar
measures presented by other issuers. Additionally, references are
made in this Press Release to the following terms, each of which is
a non-GAAP financial ratio:
- Net Leverage to Adjusted EBITDA of the Company
Net Leverage is calculated as consolidated Debt (debt financing
from existing and incremental credit facilities) less Cash.
Non-GAAP financial ratios are ratios or percentages that are
calculated using a Non-GAAP financial measure. Non-GAAP financial
ratios do not have any standardized meaning prescribed by IFRS and
therefore may not be comparable to similar measures presented by
other issuers.
Management believes the Non-GAAP financial measures and Non-GAAP
financial ratios defined above are important supplemental measures
of operating performance and highlight trends in the business and a
framework for considering the valuation of Melissa & Doug.
Management believes that these measures allow for assessment of the
Company's operating performance and financial condition on a basis
that is consistent and comparable between reporting periods. The
Company believes that investors, lenders, securities analysts and
other interested parties frequently use these Non-GAAP financial
measures and Non-GAAP financial ratios in the evaluation of
issuers.
Reconciliation of Melissa & Doug's 2022 Operating Income
(US GAAP) to Adjusted EBITDA (IFRS)
US$ millions:
Operating income,
per US GAAP
|
25.3
|
|
IFRS
adjustments
|
2.2
|
Operating income,
per IFRS
|
27.5
|
|
Depreciation and
amortization
|
20.8
|
EBITDA
|
48.3
|
|
Normalization
adjustments1
|
42.0
|
Adjusted
EBITDA
|
90.3
|
(1) Normalization
adjustments include certain costs that do not relate to the
post-combination entity including freight costs in excess of normal
operating
costs, non-recurring expenses, stock compensation expense,
severance and
other payroll related costs that are not anticipated to be carried
forward
post-combination.
|
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SOURCE Spin Master Corp.