Chase Manhattan Corp. and Goldman Sachs & Co. have pledged their support to finance Cypress Group's buyout of General Host Co., operators of Frank's Nursery and Crafts Stores.
Cypress Group, a New York-based private equity group formed by veterans of Lehman Brothers Inc., said last week that it would buy General Host, of Stamford, Conn., for $320 million in cash and take on $171 million of debt.
Cypress will fund the purchase with cash from its $1.5 billion fund, which closed in February 1996.
Chase and Goldman have provided Cypress with a commitment letter to refinance General Host's debt and to provide additional liquidity to the company. The duo will co-lead a bank facility and co-lead a subordinated debt offering early next year.
Detroit-based Frank's is the largest chain of specialty retail stores devoted to the sale of lawn and garden products.
Cypress Group said it plans to renovate and refurbish the stores, strengthen their services, and expand into new markets over the next three years.
David Spalding, vice chairman of Cypress Group, said it chose Chase and Goldman to lead the financing because "Chase is an investor in our fund, and we look to work with our partners as often as we can in financing transactions."
Idea generation was also a key factor. "Both Goldman and Chase have done a good job showing us ideas and bringing their M&A capabilities to bear," Mr. Spalding added. "That's something we look to reward with our choice of who provides the financing."
Chase has a history of financing the home improvement sector. In July, Chase led a $600 million loan to back Leonard Green & Partners' acquisitions of Hechinger Co. and Kmart Corp.'s Builder's Square. Chase also led Kmart's $3.7 billion financing package in April 1996.
Observers said Hechinger and General Host are in similar business situations.
Though both benefit from aging baby boomers who spend more money on home improvement, these retailers also face tough competition from market leaders Home Depot Inc. and Lowes Cos.
Home Depot and Lowes "stand out as clearly being the successful companies, at the expense of everyone else trying to sell building materials to individuals," said analyst Terry Schumacher of Black & Co., Portland, Ore. "Hechinger was a casualty of that."