PetSmart Being Acquired by BC Partners-led Group for $8.7B
In what is touted to be one of the major private equity deals of 2014, a consortium led by BC Partners will acquire PetSmart, Inc. (PETM) for $8.7 billion or $83 per share. This implies a 7% premium to the last day’s closing price of $77.67 and 39% over closing share price on Jul 2, 2014.
Moreover, the deal is priced at a 9.1x multiple of PetSmart’s adjusted EBITDA for the year ended Nov 2, 2014.
In July PetSmart started evaluating strategic alternatives following a 9.8% stake disclosure by Jana Partners. The activist fund pushed the company to look for a buyer to battle a mediocre financial run and maximize shareholder value. The company has been losing ground since online retailers like Amazon.com Inc. (AMZN) entered the pet supplies space.
The transaction has undisputed Board approval; however, it remains subject to regularity, shareholder and customary approvals. The transaction is anticipated to conclude in the first half of 2015. Other members of the consortium include Longview Asset Management, La Caisse and StepStone.
As per sources, BC Partners led consortium outbid Apollo Global Management, LLC (APO) and KKR & Co. L.P. (KKR) and other bidders in a week long auction process, striking the agreement on Sunday.
Irrespective of the business assessment, the company already has undertaken various improvement initiatives in order to turnaround its performance which include cost savings, widening product range, developing its omnichannel network and enhancing customer experience.
PetSmart announced a multi-year profit improvement program in the third quarter of fiscal 2014. By implementing several initiatives, the company aims at achieving $200 million in annual cost savings by the end of fiscal 2015. Nearly 60% of this will be realized in fiscal 2015 and rest in fiscal 2016. These initiatives seem to have paid off quite well as the company beat the Zacks Consensus Estimate in all the trailing four quarters by an average of 4.9%.
PetSmart currently is a Zacks Rank #1 (Strong Buy) stock.
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