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Behind Silver Lake's $3.5 billion gift card deal

Private equity firms Silver Lake and P2 Capital Partners today agreed to a $3.5 billion take-private acquisition of Blackhawk Network, an operator of in-store prepaid gift card "malls" and websites like GiftCards.com.

Backstory, per a source: Silver Lake first offered to buy Blackhawk around five years ago, when it was being spun out of grocery chain Safeway, but couldn't agree on terms.

  • BlackHawk was originally formed as a subsidiary of Safeway, but the relationship became problematic as BlackHawk expanded its business into Safeway rivals.
  • Silver Lake came calling as Safeway prepped a tax-free spinoff. Safeway insisted that any acquisition provide the same after-tax proceeds to shareholders — something Silver Lake couldn't swallow.
  • Silver Lake and Blackhawk remained in touch over the years, including during a rough patch for Blackhawk related to an industry shift to EMV (i.e., swiped cards to chip cards).
  • Blackhawk shares took a dive last October from which they didn't recover, following an earnings miss that reflected slow ROI from diversification into corporate rewards programs. Well, didn't recover until Silver Lake offered a big premium today...
  • P2 Capital Partners is an existing shareholder, already holding just over 5% of outstanding Blackhawk shares.
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