November 24, 2015
Will Petco’s new boss be the same as the old boss?
A deal to merge with PetSmart didn’t work out, but Petco has found a buyer. CVC Capital Partners (CVC) and Canada Pension Plan Investment Board (CPPIB) announced a definitive agreement to acquire the pet specialty retailer and its 1,400+ stores from TPG and Leonard Green & Partners for $4.6 billion.
"As the North American pet industry continues to grow, Petco is well positioned with a strong brand, differentiated engagement model, and omnichannel strategy," said James Myers, CEO of Petco, in a press release to announce the deal. "Both CVC and CPPIB have outstanding track records and deep retail experience and resources that will help support our growth initiatives."
"The pet category is a growing and dynamic space within which we believe Petco is ideally positioned to further enhance its leadership position," said Chris Stadler, CVC managing partner. "We look forward to working with our outstanding partners at CPPIB to support the company’s growth as it continues to execute its strategy and plans to capitalize on promising market opportunities."
"This investment aligns well with CPPIB’s strategy to invest in leading retail businesses with strong omnichannel capabilities," said Shane Feeney, managing director, head of direct private equity, CPPIB. "Petco has a well-known brand and a strong position in the U.S. pet sector. The company has long-term relationships with leading pet food vendors and a significant presence in the fast growing e-commerce channel."
Source: petco.com
Petco, according to reports, had initially informed the U.S. Securities and Exchange Commission it was considering an initial public offering back in August.
The company, which reported an improvement in its profitability for the first six months of 2015, didn’t follow through with an IPO under TPG and Leonard Green, instead choosing to seek a merger with PetSmart, which is owned by a consortium led by BC Partnters. When regulators quashed the prospects of a mega-merger between the two top pet specialty chains, the way was opened for CVC and CPPIB to step in. The deal is expected to close in early 2016.
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Recent Discussions
Discussion Questions
Why do you think omnichannel and e-commerce were emphasized as factors in the decision to purchase by Petco’s soon-to-be new owners? Will Petco’s acquisition be any different than other private equity plays based on the Canada Pension Plan Investment Board’s position in the retailer?
Poll
“Omnichannel” is a useful buzzword to suggest that any retail company is on top of its strategic game right now and therefore a good investment. This may or may not be true in Petco’s case, but the previous owners weren’t successful in merger talks with its bigger competitor nor with an IPO. The previous PE owners seemed determined to get out from their investment, one way or another.
Well, it’s buzzword bingo, but Petco would do well to have a real omnichannel strategy. Even more importantly, I think the company needs a better demand forecast.
Because the weight/value ratio is distorted (kitty litter, for example, is very heavy but not that expensive), endless aisle isn’t the best idea. Better to have the right product in stock when the customer wants it.
Anecdotally I can tell you that I used to buy all my pet food there, but out-of-stocks on the flavors I wanted caused me to go elsewhere — to Amazon — where the flavors are always in stock. I didn’t take the decision lightly, and actually asked two different managerial types in the store (and an executive from the home office) to please do something to keep the flavors I wanted in-stock. I offered to get info by phone, email, carrier pigeon … whatever it took. I was willing to drive up when they were there to get what I needed.
Finally I gave up. The company has the same problem with litter boxes and when I commented about it just the other day was told, “come on Thursdays when the deliveries come to the store.” Wow. Just wow.
So omnichannel would be great. But Petco has to make it real. At the moment, just about the only category that’s supporting two “category killers” is the pet industry (Petco and Petsmart). This may not be sustainable, so it’s in Petco’s best interest to make serious and real investments in improved forecasting.
Some retail lends itself much better to omnichannel execution. I believe pet superstores is a prime channel to build business online while over time creating a more efficient and profitable brick-and-mortar store system. Pet food, treats and supplies are all commodities that very nicely can be purchased online without the need of an in-store experience, such as in the case of grocery perishables. In addition, Petco’s loyalty program provides a potential strong platform for targeted offers and relevant marketing.
On the other hand, like most capital investment ownership, I would image they will put Petco on a short leash (all puns intended), expecting immediate growth and results.
I don’t get this at all. Frankly, a Petco/PetSmart merger made so much more sense than this. The regulators who kabosched it did wrong by both customers and the two companies. The two stores, their look, their client bases, and their products are so utterly similar that it is not readily apparent why they both are necessary or that they can both prosper in an increasingly crowded pet supplies market that includes brick-and-mortar and online shoppers.
The truth?
“Omnichannel” (there is that word again!) and c-commerce were emphasized because they are the buzzwords of the day in retailing, so it makes the deal sound more like a strategic purchase and less like what it is, a private equity profit play.
To be honest, I’m not sure I even understand the second question. The CPPI is presumably investing to make a profit. If they aren’t, their board ought to be be replaced. So I don’t think the acquisition will ” … be any different than other private equity plays … “
How could it be? And — perhaps more importantly — why should it be? Are we presuming that because the CPPI is Canadian, it is somehow more civilized and nurturing about how, where and why it invests? Isn’t that a bit patronizing to our neighbors to the north?
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“Omnichannel” is a useful buzzword to suggest that any retail company is on top of its strategic game right now and therefore a good investment. This may or may not be true in Petco’s case, but the previous owners weren’t successful in merger talks with its bigger competitor nor with an IPO. The previous PE owners seemed determined to get out from their investment, one way or another.
Well, it’s buzzword bingo, but Petco would do well to have a real omnichannel strategy. Even more importantly, I think the company needs a better demand forecast.
Because the weight/value ratio is distorted (kitty litter, for example, is very heavy but not that expensive), endless aisle isn’t the best idea. Better to have the right product in stock when the customer wants it.
Anecdotally I can tell you that I used to buy all my pet food there, but out-of-stocks on the flavors I wanted caused me to go elsewhere — to Amazon — where the flavors are always in stock. I didn’t take the decision lightly, and actually asked two different managerial types in the store (and an executive from the home office) to please do something to keep the flavors I wanted in-stock. I offered to get info by phone, email, carrier pigeon … whatever it took. I was willing to drive up when they were there to get what I needed.
Finally I gave up. The company has the same problem with litter boxes and when I commented about it just the other day was told, “come on Thursdays when the deliveries come to the store.” Wow. Just wow.
So omnichannel would be great. But Petco has to make it real. At the moment, just about the only category that’s supporting two “category killers” is the pet industry (Petco and Petsmart). This may not be sustainable, so it’s in Petco’s best interest to make serious and real investments in improved forecasting.
Some retail lends itself much better to omnichannel execution. I believe pet superstores is a prime channel to build business online while over time creating a more efficient and profitable brick-and-mortar store system. Pet food, treats and supplies are all commodities that very nicely can be purchased online without the need of an in-store experience, such as in the case of grocery perishables. In addition, Petco’s loyalty program provides a potential strong platform for targeted offers and relevant marketing.
On the other hand, like most capital investment ownership, I would image they will put Petco on a short leash (all puns intended), expecting immediate growth and results.
I don’t get this at all. Frankly, a Petco/PetSmart merger made so much more sense than this. The regulators who kabosched it did wrong by both customers and the two companies. The two stores, their look, their client bases, and their products are so utterly similar that it is not readily apparent why they both are necessary or that they can both prosper in an increasingly crowded pet supplies market that includes brick-and-mortar and online shoppers.
The truth?
“Omnichannel” (there is that word again!) and c-commerce were emphasized because they are the buzzwords of the day in retailing, so it makes the deal sound more like a strategic purchase and less like what it is, a private equity profit play.
To be honest, I’m not sure I even understand the second question. The CPPI is presumably investing to make a profit. If they aren’t, their board ought to be be replaced. So I don’t think the acquisition will ” … be any different than other private equity plays … “
How could it be? And — perhaps more importantly — why should it be? Are we presuming that because the CPPI is Canadian, it is somehow more civilized and nurturing about how, where and why it invests? Isn’t that a bit patronizing to our neighbors to the north?