STONEWATER MERGES WITH PREMIER SALONS

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Falconhead Capital, owner of the Stonewater Group of Spas, has acquired a majority stake in Premier Salons, a Toronto-based spa and hair salon chain. In a deal valued at more than $100 million, Premier will merge with Stonewater Spas to create one of the largest salon and spa businesses in North America.

Falcon is expecting the merger to breathe new life into the 20 Stonewater day spa properties, which insiders say have been struggling since the group began to acquire upscale spas around the country five years ago. Premier Salons operates more than 400 service-oriented salons and spas throughout Canada and the United States, featuring spa products from Babor.

Both sides are hoping the synergies between the two companies will be similar to those of day spa chain Elizabeth Arden Red Door and the upscale Mario Tricoci salons—both owned by equity trust North Castle Partners. However, some spa experts are skeptical that the partnership will 'gel.' 'Premier operates salons in Walmart, Sears, and JC Penney, in addition to a select Saks Fifth Avenue and Neiman Marcus.

Premier Executive, however, are counting on their positioning in prestigious department and specialty stores to complement Stonewater's upscale clientele. "This acquisition gives us a new platform upon which to build going forward," said David Moross, chairman and chief executive of New York-based Falconhead Capital, in the press release announcing the merger. "There are a lot of cost synergies, and when you put the two together, your Ebitda growth is significant. There is huge operating leverage as a result."

The combination of Premier and Stonewater will establish the combined enterprise, which will be known as Premier, as one of the largest independent upscale spa and salon companies in North America, with combined revenues of more than $125 million. Terms of Premier's purchase were not released, but sources say Falconhead owns about 60% of the combined company, while Premier Salons will own roughly 40%. Premier founder Brian Luborsky will be CEO of the combined chain, whose headquarters will be in Toronto. "We're now in most of the major metropolitan high-end markets in the country," Luborsky said. "With Falconhead, we now have more access to capital, and we can do more acquisitions."