Canadian Tire will acquire the retail business and assets of Party City’s Canadian subsidiary, including its 65 stores, intellectual property and employee base, for $174.4 million CAD (approximately $131 million USD).
As part of the acquisition, Party City’s product assortments will be made available nationally across 500 Canadian Tire stores and online at Canadiantire.ca. The retailer will expand Party City’s standalone store network in Canada and also plans to build Party City-branded store-in-store, pop-ups and “in-line” aisles across Canadian Tire locations. Canadian Tire also will integrate Party City into its Triangle Rewards program.
Canadian Tire estimates that it will be able to double Party City’s annual sales in Canada to $280 million CAD ($212 million USD) by 2021. By combining the two brands, Canadian Tire hopes to strengthen its connection with Millennial shoppers, pointing out in a statement that adding a trip-driving category would be beneficial and noting that the average household hosts four parties or celebrations per year.
“We believe the Party City-Canadian Tire partnership will drive more trips, improve our offers in micro seasons, strengthen our connection with Millennials and Canadian families and expand the appeal of Triangle Rewards,” said Allan MacDonald, EVP, Retail at Canadian Tire Corp.
The 2018 EBITDA of the 65 acquired locations totaled approximately $17.6 million CAD, while the amount of inventory is valued at approximately $40 million CAD.
Canadian Tire announced the deal alongside its Q2 results, which saw revenue increase 5.9% to $3.67 billion CAD($2.77 billion USD), mostly from retailing, which jumped 7.8%. Canadian Tire Corp. has made major attempts to diversify its business in recent years, operating multiple retail banners including its namesake Canadian Tire stores, sporting goods retailer Sport Chek, footwear and apparel retailer Mark’s and sportswear company Helly Hansen across 1,700 locations.
Party City said proceeds from the sale will be used to pay down debt. In its Q2 earnings report, the company revealed that total revenues increased 0.5% to $563.9 million, falling short of the $572 million analysts had forecast. Retail sales increased 2.9%, but same-store sales decreased 2.1%, with the company attributing the dip to a global helium shortage. The company increased the number of stores it plans to close this year from approximately 45 locations to 55.
The transaction, which has been unanimously approved by the Party City board, is expected to close by October 1, 2019.
Party City’s subsidiary Amscan Inc., which is the retailer’s decorated party goods designer, manufacturer and distributor, also will have a long-term wholesale supply agreement with Canadian Tire beginning with an initial term of 10 years. Party City estimates that the supply agreement will effectively double Amscan’s average annual wholesale shipments into the Canadian marketplace during the term of the agreement.