Liberty Tax to acquire Sears Hometown outlet business for $132.9M

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Tax prep chain Liberty Tax is expanding into the retail industry by acquiring the Sears Hometown outlet business.

Liberty Tax, based in Virginia Beach, Virginia, announced Tuesday that it has entered into a definitive deal to purchase the Sears Outlet business, along with Buddy’s Home Furnishings Stores, from Sears Hometown and Outlet Stores Inc. in an all-cash transaction valued at up to $132.9 million. Earlier this month, Liberty Tax announced another deal in the non-tax retail space to buy the Vitamin Shoppe Inc., a popular vitamin store chain.

Last year, Liberty Tax ousted founder and chairman John Hewitt after reports that he had sex in his office and had hired the relatives of an employee with whom he had a romantic relationship (see Liberty Tax soars after founder involved in sex scandal agrees to leave firm). Even before that, he was ousted as CEO in 2017, but he had retained a large stake in the company and the chairmanship until the board negotiated a deal for him to sell his shares and sever his ties (See Liberty Tax ousts John Hewitt as CEO). Before founding Liberty Tax Service in 1998, Hewitt had co-founded another major tax prep chain, Jackson Hewitt, in 1988, and he had been a regional director at H&R Block before that.

Sears has also been going through a tumultuous time. The holding company of both Sears and Kmart, Sears Holdings Corp., filed for bankruptcy last October and the bankrupt estate of the holding company has been embroiled in lawsuits with Eddie Lampert, the hedge fund executive who had been brought in as CEO to rescue the struggling retail giant. The estate has claimed that Lampert drained the company of its once-sprawling real estate assets, but his firm, ESL Investments, is suing the estate for $718 million.

The new Sears is now called Transform, and was involved with the deal with Liberty, whose details are fairly complicated. According to the announcement, Liberty Tax plans to finance the transaction through a combination of new debt, Liberty Tax’s balance sheet cash and/or an equity contribution from an affiliate of Vintage Capital Management. In connection with the execution of the purchase agreement, Liberty Tax entered into a debt commitment letter with Guggenheim Credit Services as administrative agent and lead arranger, and clients managed by Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, and an equity commitment letter with an affiliate of Vintage.

The sale of the Sears Outlet business is in accordance with the terms of a merger agreement plan between Sears Hometown and Transform Holdco, which was announced by Sears Hometown and Transform in June. The sale is expected to result in net proceeds of approximately $121 million. Meanwhile, the merger consideration payable by Transform in the merger transaction for the outstanding shares of Sears Hometown not owned by ESL Investments (Lampert’s firm) and its affiliates is estimated to be approximately $3.25 per share in cash, an increase of approximately $1.00, or approximately 44.4 percent, from the previously announced base merger consideration of $2.25 per share. ESL Investments and its affiliates, the majority owners of Transform, now hold approximately 55.2 percent of the outstanding shares of Sears Hometown.

Meanwhile, Liberty plans to expand further into the franchise space, with or without tax services. “We are excited about the acquisition of Sears Outlet and its unique model that offers its customers in-store and online access to outlet-value products across a broad assortment of merchandise categories, while serving as a valuable supply chain partner for its vendors,” said Liberty Tax chairman Andrew Laurence in a statement. “This is a continuation of Liberty Tax’s strategy of identifying and acquiring franchised or franchisable businesses while also building scale at attractive acquisition valuations. It’s an exciting time for Liberty Tax and its shareholders as we begin to recognize the strength in our future-facing franchise business model.”

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