Engine Driver Barbie could be the doll's next costume after toymaker Mattel Inc. agreed Monday to buy the British owner of Thomas the Tank Engine from Apax Partners LLP for $680 million.
Mattel, of El Segundo, Calif., said it would buy Hit Entertainment Ltd. at a price valuing the company at about 9.5 times trailing Ebitda, to be financed with a combination of cash and debt, nut the sum is well below the reported $1.6 billion target the sellers were looking for when they started shopping the London rights business a year ago and brought in Bank of America Merrill Lynch and UBS to provide strategic advice.
Paris-based Apax declined to disclose its return on the deal, which does not include Hit Entertainment's interest in U.S. children's cable network PBS Kids Sprout. A spokeswoman said Apax was reviewing its options for Sprout.
Hit Entertainment owns some extremely successful brands, including Thomas & Friends, Barney the Dinosaur, Pingu, Fireman Sam and Angelina Ballerina. It generates annual revenue of more than $180 million and is one of the largest independent owners of preschool intellectual property.
Nevertheless, the TV rights industry is going through difficult times, and Hit Entertainment has not proved a hugely profitable investment for Apax, although a source said Monday it has not proved a money-loser either. A consortium led by Apax took the company private in 2005 for £489.4 million (then $928.5 million) and financed the acquisition with £306 million of equity.
As well as hoping to recoup an extra return for the eventual sale of its stake in Sprout, Apax made an undisclosed sum in 2008 with the sale of Hit Entertainment's noncore holding in the publisher of Guinness Book of Records, which was bought by Canada's Jim Pattison Group, the owner of Ripley's Believe it or Not!
Mattel currently markets many Thomas & Friends toy products under a license from HIT Entertainment that extends through 2014. Mattel's global sales of Thomas & Friends die-cast and plastic toys are more than $150 million, and Mattel said it believed the transaction would allow the company to continue to expand and grow these product lines.
Mattel will also reunite two Thomas & Friends toy businesses, plastic and die-cast toys and wood-based toys. The current wood license expires at the end of 2012, at which time Mattel expects to add that line of business to its portfolio. Historically, the sales of wood-based toys have been around half the size of the plastic and die-cast business.
The deal is expected to close in the first quarter, subject to regulatory approval. Mattel took financial advice from RBC Capital Markets LLC and legal counsel from a Latham & Watkins LLP team led by James Beaubien and Robert O'Shea and including Jared Sine and Craig Frame. Hit Entertainment and Apax took financial advice from BofA Merrill Lynch and legal counsel from a Weil, Gotshal & Manges LLP team led by Michael Aiello, Mark Soundy and Jaclyn Cohen and including Arlene Hahn, Vaughan Petherbridge, Kathleen Clark, Kenneth Heitner, Michael Nissan and Sarah Priestley.