Thomas H. Lee Partners Buys Party City for $2.69 Billion

Thomas H. Lee Partners LP agreed to buy a majority stake in Party City Corp. from its private-equity owners in a transaction valued at $2.69 billion including debt, after the largest U.S. party-supplies retailer filed for an initial public offering that hasn’t been completed.

Thomas H. Lee will own about 65 to 66 percent of the company, said a person familiar with the matter who declined to be identified because the details haven’t been made public. Party City’s existing owners -- Advent International Corp., Berkshire Partners LLC, Weston Presidio and management -- will hold minority stakes, Boston-based Thomas H. Lee said today in a statement announcing the agreement.

Private-equity managers are turning to other buyout firms to buy and sell companies as the IPO market slumps amid Europe’s debt crisis. So-called secondary sales are the second-most common way to exit investments after sales to strategic buyers, accounting for about 25 percent of divestitures in the first quarter, according to Preqin Ltd., a London-based researcher.

“The IPO window has shut very abruptly and is weak for the time being, so secondary buyout sales are looking strong,” said David Fann, chief executive officer of TorreyCove Capital Partners LLC, a La Jolla, California-based firm that advises private-equity managers and investors. “Multiple offerings have been pulled and it’s impacting where the private-equity managers look for exits.”

Valuations have also given investors pause after Facebook Inc. fell 30 percent from its IPO price. At least 13 IPOs have been withdrawn or postponed globally since Facebook’s May 17 offering, slowing a market for deals that’s struggled to keep momentum as U.S. stock values have failed to recover to levels before the financial crisis.

Halloween Stores

Party City, which was founded in 1947 as a wholesale party supplier, last year filed to raise as much as $350 million in an IPO. The retailer had $982.3 million of debt as of Dec 31, according to the company’s amended prospectus filed last month with the U.S. Securities and Exchange Commission.

The purchase, Thomas H. Lee’s fourth this year, gives the private-equity firm a chain with 1,200 owned and franchised stores in the U.S. and Canada and about 400 temporary Halloween stores, along with a wholesale business. Party City posted net income of $76.3 million last year on $1.87 billion in revenue, according to a prospectus filed on May 10.

“Party City leads the $10 billion retail party goods industry in terms of product selection and retail network,” Todd Abbrecht, a managing director at Thomas H. Lee, said in the statement. “We look forward to working closely with the team at Party City to maximize its scale and vertically integrated business model to continue to grow its business.”

Deal Advisers

Thomas H. Lee will make the investment out of its current buyout fund, Thomas H. Lee Equity Partners VI, which closed with $8.1 billion in 2007, according to another person familiar with the matter, who asked not to be identified. The fund, which had an internal rate of return of 2.45 percent net of fees as of the third quarter last year, has investments including Puerto Rico-based First BanCorp, payroll processor Ceridian Corp. and uniform-apparel company Aramark Corp., according to Seattle-based researcher PitchBook Data Inc.

Thomas H. Lee manages $14 billion in assets and also has stakes in companies including Dunkin’ Brands Inc., Clear Channel Communications Inc. and Nielsen Holdings NV. The firm was advised by Bank of America Corp. and Moelis & Co. and received legal advice from Weil Gotshal & Manges LLP.

Party City was advised by Goldman Sachs Group Inc. and Deutsche Bank AG. Ropes & Gray LLP gave legal advice to Party City and its current owners, Advent International, Berkshire Partners and Weston Presidio.

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