Canadian Tire Corporation (CTC) has announced that it has entered into an agreement to purchase Party City’s Canadian business for $174.4 million (including ~$40 million in inventory). Party City is a shopping destination for party supplies and an expert in seasonal and micro-seasonal celebrations, with 65 Canadian retail stores in seven provinces.
 
Here are the four pieces of the strategic rationale for this unique acquisition:
 

  1. It strengthens CTC’s marketplace.
  • CTC will immediately become a major party supply destination—a one-stop-shop for all consumers’ party and celebration needs, cementing Canadian Tire as “Canada’s Fun Store.”
  • Party City’s exclusive product assortments will be made available nationally across 500 Canadian Tire Retail (CTR) stores and online at Canadiantire.ca.
  • The acquisition adds the leading party supply brand to Triangle Rewards, further expanding and strengthening the program.
  • CTC will expand Party City’s standalone store network in Canada and build in-store pop-ups and “in-line” aisles across CTR.
 
  1. It creates a new platform for growth.
  • With expertise in seasonal and micro-seasonal celebrations, Party City complements CTC’s existing family fun categories and its role in preparing Canadians for the joys of life in Canada.
  • The acquisition provides access to Party City’s extensive catalogue, including exclusive and proprietary designs and licensed products, such as Disney.
  • CTC’s retail capabilities and store network position it to double Party City’s Canadian retail sales to $280 million by 2021.
 
  1. It strengthens connection with millennials and Canadian families.
  • CTC gains a powerful customer segment with millennials and Canadian families, expanding the appeal of Triangle Rewards.
  • With the acquisition, CTC adds a trip-driving category, with the average household hosting four parties or celebrations per year.
  • There’s significant opportunity to grow Triangle Rewards engagement and membership through Party City’s appeal to these high lifetime value customer segments.
 
  1. It has strong financial fundamentals
  • Immediately accretive to EBITDA, ROIC, and diluted EPS.
  • Combination will accelerate Party City’s growth in Canada and unlock operational synergies.
  • CTC expects its estimated EBITDA attributable to Canadian Tire’s acquisition of Party City’s business in Canada to more than double, yielding an implied EBITDA multiple in the mid to low single digits by 2021.
 
“Strengthening our marketplace is at the heart of our growth strategy and we are excited to welcome Party City into the Canadian Tire family of companies,” says Allan MacDonald, EVP of Retail for Canadian Tire Corporation. “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. With our extensive CTR store network, unparalleled retail capabilities, and Party City’s unique assortment, we are well-positioned to more than double Party City Canada’s business by 2021.”
 
Jim Harrison, Chief Executive Officer, Party City, adds, “CTR has an unbeatable store network, retailing capabilities, and customer loyalty. These assets, combined with our wholesale supply agreement, positions them well to grow the Party City brand in Canada.”

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