Dog competition

PetSmart Deal To Go Public Could Spark A Dog-Eat-Dog Competition

Is the world, or Wall Street, big enough for three big, publicly traded dogs in the pet space? An investment group backed by private equity firm KKR & Co.

apparently think so.

Such a move could find PetSmart, Petco and recent PetSmart spin-off Chewy all fighting for Wall Street’s sake in what is expected to be an increasingly competitive pet market.

According to a Bloomberg reporta special-purpose acquisition company, KKR Acquisition Holdings I Corp, is in talks with PetSmart to take the retailer public.

KKR Acquisition Holdings I Corp. raised $1.38 billion in its IPO last year to acquire consumer or retail businesses. The SPAC, which includes Lululemon Athletica

Chairman of the Board Glenn Murphy and KKR’s Paul Raether trade under the symbol KAHC.

A deal would allow PetSmart to start publicly trading faster than if it went down a traditional IPO route. According to Bloomberg, PetSmart would be valued at $14 billion in the deal.

This could be a good payday for current owners of PetSmart, BC Partners

who paid $8.7 billion for the retailer in 2014.

BC Partners then acquired online pet retailer Chewy for just over $3 billion in 2017. He created the company in a successful IPO in June 2019 that gave BCPartners a windfall of $10 billion, part of which was used to reduce PetSmart’s debt.

Petco, the nation’s other major pet store chain, went public in January 2021, in an equally successful IPO. Shares of Petco jumped 65% in the first few hours of trading and the stock closed at $29.40, nearly double the expected range.

These successful IPOs and the surge in pet adoptions and pet product sales that occurred in the first year of the pandemic convinced many investors that betting on animals company is a smart decision.

But in recent months, Wall Street has begun to worry that demand is slowing after the pandemic and that too many companies are fighting for share of the pet market.

When Petco reported third-quarter results in November, its shares fell 13%, despite news that net sales had risen 15% and adjusted earnings had risen 17%. Wall Street was worried about slowing growth.

Shares of Chewy also fell after the release of its third quarter results in December. A 24.1% increase in sales and 15% customer growth failed to impress investors who compared those numbers to 27% sales growth and 21% customer growth. in the second quarter and didn’t like the change in momentum.

PetSmart and BCPartners did not respond to requests for comment on the possible deal.

BC Partners was recently sued by a campaign by a labor advocacy group to improve conditions at PetSmart stores for workers and pets. The group, United for Respect, lobbied BC Partners to meet with its representatives to discuss concerns, including understaffing and cost cutting. BC Partners has previously denied the charges and said it has invested millions in improving stores.

Bianca Agustin, director of corporate responsibility at United for Respect, called a potential acquisition of PSPC “one of the latest tricks in the private equity playbook to circumvent oversight and hurt workers and investors alike.” detail”. United for Respect has often accused private equity owners of looting retail businesses at the expense of workers.

“As KKR considers this deal,” Agustin said in a statement, “we hope they will commit to ensuring a viable business model for PetSmart that includes quality employment and the voice of workers, truly addressing the issues workers have bravely raised throughout the pandemic.”

“If BC Partners wants to take PetSmart to the next level by going public, they need to listen to their workers and accept their meeting request,” Agustin said.

Chewy closed today at $38.05, down dramatically from its 52-week high of $120 amid the height of pandemic-fueled pet enthusiasm. Petco closed at 17.96, down from its high of $28.73.

A key question for this KKR deal is when is the best time to go public with a past pet retailer?