Middle Market Deal Of The Year: Seasonal Halloween retailer grows into category killer


Firm: ACON Investments

Target: Spencer Spirit Holdings Inc

Sale Price: Enterprise value of $459 mln

Hold Period: 5 years, 8 months

Return Multiple: 9x



  • Revived ailing teen retailer
  • Grew Halloween retailer into dominant No. 1 position 
  • Total employment grew by 6,000
  • Minority stake retained at exit 
  • Gross IRR of deal: 59.9 percent

ACON Investments stepped up to buy one operating company with two separate store chains for what it considered an attractive multiple after spotting more growth potential than other bidders did. ACON Investments paid 4.12x EBITDA, much less than the public comparable multiple of 8.5x at the time.

“We thought they were in the second inning of a turnaround,” Ken Brotman, managing partner of Washington, D.C.-based ACON Investments told Buyouts. “Not a lot of people want to step in in the second inning.

With Spencer’s, a mall-based retailer of novelties for young people, ACON Investments recognized a time-tested brand ripe for an overhaul and operational improvements. With Spirit, a chain of seasonal retail stores selling Halloween merchandise, the sponsor moved to create a category killer.

The firm decided to stay with the existing management team put in place by seller Gordon Brothers. Unlike other buyout transactions where the leadership at a target firm retains a small stake, at Spencer Spirit management had more skin in the game, with a 40 percent stake in the company. 

Thanks in part to management’s alignment of interest in the deal, the team delivered on that plan. Under ACON Investments’s ownership, the company grew EBITDA to $83 million from $23 million and expanded total permanent and seasonal employees to 16,000 from 10,000, while enterprise value increased to $459 million from $117 million. EBITDA margins grew to 11.9 percent from 5 percent. Spencer’s expanded to 624 from 607 locations, while Spirit expanded to more than 1,000 stores from 434. In less than six years, ACON Investments turned its $20 million equity investment into about $180 million through an April, 2013 sale to Spencer Spirit management led by CEO Steven Silverstein and COO and CFO Ike Silvera.

“Spencer Spirit was a unique transaction that ultimately created substantial value,” said Brotman, who worked as a partner at Veritas Capital and as an associate Bain Capital before becoming a founder of ACON Investments in 1996. ”Where other bidders viewed the extreme seasonality and temporary retail model of Spirit as risky, ACON Investments recognized it as a competitive advantage and an opportunity to capitalize on the growing popularity of Halloween and the favorable operating leverage the temporary retail model created.”

Multiple Levers

Spencer Spirit Holdings was a corporate orphan of Vivendi adopted by Gordon Brothers Group and Paladin Capital Group in 2003. Gordon Brothers moved to sell Spencer Spirit after holding it for more than three years.

Banker Billy Susman, now managing director and co-founder of Threadstone Partners, helped ACON Investments spot the deal.

“During our diligence, we got comfortable with management’s thesis: Spencer’s was an iconic brand that had lost its relevance and lost its identification with its core consumer group,” said Brotman. “It lost its operating disciplines and there was a lot they could do to make it relevant again.”

At Spencer’s, ACON Investments grew comparable store sales, increased margins, reduced shrinkage, orchestrated improvements in inventory and clearance efforts, and started rolling out redesigned store concepts. Spencer’s sales grew to $425 million from $351 million and productivity increased by 17.3 percent to $678,000 per store from $578,000 per store.

Spirit offered a different investment thesis around multiple ways to create value.

”It was a newer concept that many others found hard to get their arms around,” Brotman said. “But we thought of it as an opportunity to create a category killer and a dominant position in a holiday that has an enormous amount of spending behind it (and) is growing in popularity” with both kids and adults.  

Spirit’s total sales more than doubled to $229 million from $104 million and it emerged as the first national seasonal Halloween retailer with more than 1,000 stores from 434 at purchase.

“Other players in the market have not been able to grow beyond certain levels and many are even declining in store count and we’re more than two times and closer to three times larger than the other major competitors combined,” Brotman said.

The hard work began to pay off in 2011, when ACON Investments floated $175 million in senior secured notes, with proceeds used to repay debt and make a distribution to shareholders. The transaction provided a 3.0x return on ACON Investment’s equity payment and it held onto its ownership position.

In April 2013, Spencer Spirit issued $165 million of Holdco senior pay-in-kind toggle notes. The company used proceeds to repurchase shares disproportionately, allowing management to increase its holdings to a majority ownership position. The transaction allowed ACON Investments to realize an additional 6.0x its invested capital in the company, while holding on to a minority stake.

Looking ahead, Brotman said ACON Investments will likely boost its return on Spencer Spirits beyond its 9.0x level through its remaining minority position. The deal illustrates the moneymaking potential of a sector not always known for delivering steep investment gains. 

“I don’t think many people thought you could make these level of returns in a business that had been known for selling Whoopie cushions nor a business that is only open for 11 weeks a year,” Brotman said.

Steve Gelsi is a senior editor of Buyouts Magazine