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PetSmart Agrees to Be Bought by BC Partners for $8.3 Billion
By David Welch
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Dec 14, 2014 6:51 PM ET
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Photographer: Victor J. Blue/Bloomberg
Cats for adoption sit in cages at a PetSmart Inc. store in New
York. 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. |
PetSmart Inc. (PETM)
agreed to be bought by a group led by BC Partners Inc. for about $8.3
billion in the largest leveraged deal for a U.S. company this year.
The group will pay $83 a share, or about 39 percent more than the
company’s price on July 2, before activist investor Jana Partners
began pushing for the sale, according to a statement today. Including
debt, the total value of the deal is about $8.7 billion, according to
the statement.
BC Partners beat other bidders including Leon Black’s Apollo Global
Management to close the deal after a weeks-long auction that came down
to negotiations over the weekend. People with knowledge of the matter
said on Dec. 13 that Apollo was nearing a deal that valued PetSmart at
about $8 billion.
“It was a very competitive auction,” Raymond Svider, a managing
partner at BC Partners said in a telephone interview. “The company
should never have been put in play. Growth slowed and the market
overreacted. We feel fortunate.”
A spokesman for Apollo declined to comment, as did a representative
for Jana. In addition to BC Partners, the consortium includes Caisse
de Dépôt et Placement du Québec and StepStone.
Jana Victory
The sale is a victory for Jana and Longview Asset Management which
also 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 run by
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 same month that it also backed a sale. Longview supports the sale
to BC Partners according to the statement.
Shares of Phoenix-based PetSmart have now gained 6.8 percent this
year, closing at $77.67 on Dec. 12, compared with an 8.3 percent gain
in the Standard & Poor’s 500 Index.
Relative Value
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 November, 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.
PetSmart 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 LP in 2006,
and buyout firms also may be interested in PetSmart, thanks in part to
an attractive financing market, Jana said in July.
To contact the reporter on this story: David Welch in
New York at
dwelch12@bloomberg.net
To contact the editors responsible for this story: Kevin Miller at
kmiller@bloomberg.net
Mohammed Hadi, Bruce Rule
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