Skip to main content

The Petsmart store in Warick, R.I., is shown Tuesday, May 24, 2005.STEW MILNE/The Associated Press

PetSmart Inc., the largest pet-store chain in the U.S., has agreed to be bought by a group led by BC Partners for about $8.3-billion (U.S.) in the biggest leveraged deal for an American company this year.

The group will pay $83 a share, according to a statement Sunday. That's about 39 per cent 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, including 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 said. 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.

Jana Victory

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 run by Barry Rosenstein, began its campaign on July 3, PetSmart's shares had tumbled 18 per cent in 2014. Longview, which controls about 9 per cent of PetSmart, said later that month that it also backed a sale. Longview supports the sale to BC Partners, according to the statement.

Shares of Phoenix-based PetSmart jumped 4.7 per cent to $81.30 as of 9:37 a.m. in New York. They had gained 6.8 per cent this year through the end of last week, compared with an 8.3-per-cent 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 past five years.

Gates Global

The private-equity deal tops Blackstone Group LP'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 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.

Report an editorial error

Report a technical issue

Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 27/03/24 6:40pm EDT.

SymbolName% changeLast
AMZN-Q
Amazon.com Inc
+0.86%179.83
APO-N
Apollo Asset Management Inc
-0.27%113.58
BX-N
Blackstone Inc
+2.35%130.89

Interact with The Globe