PetSmart Will Be Acquired for $8.3 Billion by BC Partners
By David Welch
Dec 15, 2014 9:58 AM ET
PetSmart 2014’s Largest LBO Worth $8.3B?
(Bloomberg) -- PetSmart has agreed to be purchased by BC
Partners for $8.3 billion in the biggest leveraged buyout
deal for a U.S. company this year. Bloomberg’s David Welch
examines the deal on “Market Makers.”
Inc. (PETM), the
largest pet-store chain in the U.S., agreed to be bought by a group
led by BC Partners for about $8.3 billion in the biggest leveraged
deal for an American company this year.
The group will pay $83 a share,
according to a statement yesterday. That’s about 39 percent more than
the company’s price on July 2, before activist investor Jana Partners
began pushing for the sale. Including debt, the total value of the
deal is about $8.7 billion.
BC Partners beat out other bidders,
Leon Black’s Apollo
Global Management and KKR & Co., during an auction that came down to
negotiations over the weekend, people with knowledge of the matter
BC Partners struck a
deal on Sunday, after making a final offer a day earlier that topped
other bids, the people said, asking not to be identified because the
information is private.
“It was a very competitive auction,”
Raymond Svider, a managing partner at BC Partners, said in a telephone
interview. “We feel fortunate.”
A spokesman for Apollo declined to
comment, as did a representative for Jana and a spokeswoman for KKR.
In addition to BC Partners, the consortium includes Caisse de Dépôt et
Placement du Québec and StepStone.
Photographer: Victor J. Blue/Bloomberg
Parakeets displayed for sale sit on perches inside a cage at a
PetSmart Inc. store in New York..
The sale is a victory for investors Jana
and Longview Asset Management, which both urged the retailer to sell
itself as its business waned. Same-store sales at the pet-supply
company were flat last quarter after falling in the previous three
months for the first time in at least a decade, as competition from
Amazon.com Inc. and other retailers intensified.
Until Jana, the $10 billion hedge fund
Barry Rosenstein, began
its campaign on July 3, PetSmart’s shares had tumbled 18 percent in
2014. Longview, which controls about 9 percent of PetSmart, said later
that month it also backed a sale. Longview supports the sale to BC
Partners, according to the statement.
Shares of Phoenix-based PetSmart jumped
4.7 percent to $81.30 as of 9:37 a.m. in
New York. They had
gained 6.8 percent this year through the end of last week, compared
with an 8.3 percent gain in the Standard & Poor’s 500 Index.
Including debt, the buyout group is
paying about 9.3 times PetSmart’s earnings before interest, taxes,
depreciation, and amortization in the 12 months through Nov. 2, data
compiled by Bloomberg show. That compares with a median of 8.9 times
historic Ebitda paid in 24 buyouts of U.S. consumer companies over $1
billion in the last five years.
The private-equity deal tops
Blackstone Group LP (BX)’s
$5.4 billion purchase of industrial-products maker Gates Global LLC in
July, data compiled by Bloomberg show. Buyout firms have held off on
making purchases this year, as valuations climb with stock benchmarks
that have reached records.
made a good buyout candidate because of its high free-cash-flow yield
-- a measure of how much cash from operations the business generates
relative to its share price, analysts have said. Petco Animal Supplies
Inc., a PetSmart competitor, was acquired by private-equity investors
led by Leonard Green & Partners in 2006. That helped Jana make a case
in July for PetSmart being a buyout target, especially given the
attractive financing market.
BC Partners’ Svider said the market
overreacted to slowing growth at the iconic brand, giving his firm a
fortuitous opportunity to scoop it up.
“The company should never have been put
in play,” he said.
To contact the reporter on this story:
David Welch in New York
To contact the editors responsible for
this story: Kevin Miller at
Nick Turner, Niamh Ring
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