Philly Deals: Five Below plans for an IPO

<hardreturn>Five Below Inc., the Center City-based chain of 192 kid-oriented dollar stores in 16 Eastern and Midwestern states, has hired Goldman Sachs and other brokers to lure investors for a $150 million initial public stock offering.<br /><br />The chain, founded in 2003 by former Zany Brainy toy-store owners David Schlessinger and Tom Vellios, has grown quickly, especially since investors led by Advent International Corp. of Boston pumped in $194 million in 2010.<br /><br />Five Below more than doubled its sales of cheap sports gear, snacks, party goods, and other middle-school accessories to $297 million in the year ended Jan. 11, from $125 million two years earlier, according to its filing with the Securities and Exchange Commission. Its 2011 profit was $16 million, the chain&rsquo;s third straight year in the black.<br /><br />Four of the board&rsquo;s six outside directors are affiliated with Advent, including ex-CVS Caremark boss Thomas M. Ryan; Howard Ross, a founding partner of LLR Partners, the Ira Lubert-backed Philadelphia investment group, which counts Pennsylvania state pension funds as clients; and Staples Inc. boss Ronald L. Sargent.<br /><br />Early Zany Brainy shareholders included local Philly investors like the Cohn brothers (Sage Financial) and Josh Kopelman (formerly of Half.com, now co-head of busy First Round Capital of West Conshohocken, New York, and Silicon Valley).<br /><br />Schlessinger collected $3.6 million in salary and bonus as &ldquo;executive chairman&rdquo; last year; Vellios collected $3.7 million as chief executive. Each controls more than 1 million Five Below share options.<br /><br />In comparison, Richard Hayne, founder and boss at South Philly-based Urban Outfitters Inc., whose sales were almost 10 times Five Below&rsquo;s and whose profits were more than 10 times greater, paid himself less than $100,000 last year; his three top lieutenants each collected under $2 million. But Urban Outfitters is public, and Hayne&rsquo;s shares are now valued at nearly $900 million, which shows part of the appeal of taking a company public, especially if it&rsquo;s able to boost profits as well as sales over the years.<br /><br />The last company Vellios and Schlessinger took public, Zany Brainy, was later sold to the FAO Schwartz toy chain, went bankrupt, and closed. Schlessinger previously founded Encore Books.<br /><br />More gear<br /><br />A unit of Kynetic, the Conshohocken-based online-retail company formed by Michael Rubin to run the businesses he didn&rsquo;t sell with his GSI Commerce Inc. to eBay last year, has agreed to pay $158 million, or $3.45 a share &mdash; a five-year high &mdash; and assume $25 million in debt to acquire Florida-based rival Dreams Inc.<br /><br />Dreams, under chief executive Ross Tannenbaum and chairman Sam Battistone, has lately won clients such as Comcast SportsNet and Modell&rsquo;s from Kynetic&rsquo;s Fanatics division, says Michael Devlin, a broker at Long Island-based Henley &amp; Co.<br /><br />Sales of licensed NFL, NCAA, MLB, NBA, and NHL gear by Fanatics through Disney-ABC&rsquo;s ESPN sports network, Fox, CBS, Rivals.com, and other sites, will total about $700 million this year, and in a meeting last week, Rubin told investors that the business enjoys &ldquo;high profit margins,&rdquo; according to Janney Capital Markets analyst Shawn Milne.<br /><br />Dreams reported sales of $142 million last year, up from $111 million in 2010 and $86 million in 2009; after-tax profits were less than 1 percent of sales last year and under 2 percent in 2010.<br /><br />Fanatics chief Alan Trager said the merger joins &ldquo;two of the most passionate management teams in licensed sports products&rdquo; to sell college and pro gear through mobile and e-commerce systems and regional distribution centers. <br /><br />The sale price, a five-year high for Dreams shares, gives Dreams owners &ldquo;meaningful value&rdquo; for the stock, Phillip Frost, board chairman of Teva Pharmaceuticals, the Israeli drugmaker whose U.S. headquarters is in suburban Philadelphia, said in a statement. Frost is the third-largest Dreams shareholder after Tannenbaum and Battistone. Morgan Lewis &amp; Bockius L.L.P. of Philadelphia advised Fanatics.<br /><br />More loans<br /><br />Pennsylvania Higher Education Assistance Agency, a state-related organization that services college loans, says it plans &ldquo;a new economic-development initiative that will create nearly 150 new jobs in Chester.&rdquo;<br /><br />Delaware County State Rep. Bill Adolph, a Republican who chairs the PHEAA board (and the powerful state House Appropriations Committee), plans to join State Sen. Domenic Pileggi (R., Delaware) at Buccini/PollinGroup&rsquo;s Wharf at Riverfront offices Thursday to announce the move.<br /><br />Wharf anchors the riverfront-redevelopment zone that&rsquo;s also home to the Philadelphia Union soccer stadium. The office complex is mostly occupied, the Buccinis say, though it lost some early tenants when Wells Fargo &amp; Co. and software-maker Oracle cut staff. <br /><br />PHEAA has resisted takeover offers from national lenders. Despite federal subsidy reforms that have made college loans less profitable, it&rsquo;s still a growth industry: Americans now owe more for college loans than credit-card debt. Pileggi&rsquo;s district can use all the jobs it can get, especially after the Sunoco-Marcus Hook refinery closing.<br /><br />Contact columnist Joseph N. DiStefano at 215-854-5194, JoeD@phillynews.com, or @PhillyJoeD on Twitter.<br class="hardreturn" />

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