San Diego-based pet supplies retailer Petco on Monday confirmed that it will be acquired for around $4.6 billion by private equity firm CVC Capital Partners and the Canadian Pension Plan Investment Board. The deal is expected to close early next year.
The sellers are TPG Capital and Leonard Green & Partners, which paid $1.8 billion to take Petco private back in 2006. They had filed back in August to return Petco to the public markets, but ultimately agreed to sell after receiving takeover interest not only from the ultimate buyers, but also from firms like Apollo Global Management and KKR (which was working with Hellman & Friedman).
Petco reported $75 million of net income on nearly $4 billion in revenue for the fiscal year ending January 31, compared to $85 million in net income on $3.79 billion for the year-earlier period. It also had $191 million of cash and $2.27 billion of debt on its balance sheet. For the 26 weeks ending August 1, 2015, the company reported $47 million of net income on $2.17 billion in revenue, compared to $32 million of net income on $1.9 billion in revenue for the 26 weeks ending August 1, 2014.
For context, rival PetSmart reported $419 million of earnings on $6.9 billion in revenue for the fiscal year ending February 2, 2014 — and was acquired late last year for $8.7 billion by private equity firm BC Partners (Apollo Global Management also was a losing bidder in that situation).
In terms of EBITDA multiple, it would appear that the Petco buyers are paying a significantly higher premium. PetSmart was done at 9.1x EBITDA, whereas this deal appears to be around 10x EBITDA (although a source says that it will be closer to 9x when new initiatives are annualized). The debt-to-EBITDA multiple is expected to be at around the 6x limit established by Federal Reserve guidelines.
Leveraged financing for Petco has been committed by Barclays, Citigroup, Royal Bank of Canada, Credit Suisse, Nomura and Macquarie.
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