After months of "will it, won’t it-, School Specialty and LBW Holdings announced last week that they had mutually terminated their merger agreement.
In July, the OP reseller had agreed to be taken over by LBW Holdings, an affiliate of Bain Capital Partners, for about $1.5 billion including debt. The deal was expected to close in School Specialty’s Q2, ending 29 October, but started to look unlikely when three of LBW’s banks pulled out of the agreement at the beginning of October.
President/CEO of School Specialty David Vander Zanden, who was to continue in the same position after the deal’s completion, claims there are good and bad things about the outcome. "It is easier to run a company with a debt of $400 million than a company with a debt of $1.2 billion," he told OPI+ [Bain would have put in equity and borrowed the rest, he says]. "Furthermore, if Bain had closed the deal, School Specialty would no longer be public – and it is easier to run a public company as there is more focus on the long term."
On the flip side, Vander Zanden says that Bain is very professional and that School Specialty will miss out from this input at the helm. In addition, although no termination fees were triggered, the man hours and resources spent on the transaction have cost School Specialty as much as $5-$6 million.
When asked by OPI+ if he was surprised that the merger went belly-up, Vander Zanden’s reply was "yes and no".
"During the due diligence period, the market was not that favourable and LBW’s banks had heartburn, re-looked at the numbers in the deal, and we had bank commitment letters," he says. A high yield in the marketplace, high interest rates, combined with others factors such as the hurricane, a rise in energy prices and the subsequent effect on consumer spending all had an effect on the merger, he adds. "Triggers gave Bain the opportunity to walk from the deal if interest rates got too high and these triggers were put in place."
Disappointing results at Bain in August and September as well as the company’s near-term financial and operating prospects were also said to have been behind the banks’ decision.
Moving forward, Vander Zanden maintains that it’s business as usual. "We did not go through a process to find a buyer; Bain contacted us. We will continue to run as a public company," he says. On whether there could be another buyer, Vander Zanden says he has no comment until and if there is something to announce.
He is upbeat about the future, particularly on the back of the company’s recent acquisition of Delta Education for $272 million, which was completed at the end of August. "This is the largest transaction we have ever made, it is a great company, and the integration so far has been hitch-free," he says. This integration, which adds 250 employees to the now 2,800-strong School Specialty fold, is expected to be completed by the end of January.
Vander Zanden has plans to invest more heavily in the education space by focusing on high-end education products such as the FOSS range acquired through Delta, a hands-on activity-based science learning programme. He also plans to launch a literacy programme in the US and Canada known as AWARD as well as an education symposium.
He adds that acquisitions will remain an important component of School Specialty’s strategy. "We aim to build a number one position in every curriculum space and we will do this through both internal growth and development, and acquisitions," he says. "In the last few years we have made $70-$100 million annually on the back of acquisitions."
He expects turnover to reach $1.2-$1.5 billion by the company’s year-end of April 2006.