Private Equity firms often get a mixed scorecard by investors and by the public. Then there are the instances where private equity firms blow the doors off the barn in successful deals. A fresh announcement from Petco Animal Supplies, Inc. was made on Monday confirming that private equity funds affiliated with CVC Capital Partners and Canada Pension Plan Investment Board have entered into a definitive agreement to jointly acquire Petco from a group of investors led by TPG and Leonard Green & Partners.
As far as why he deal is viewed so positively here, the purchase price is for approximately $4.6 billion. Now you have to go back down memory lane, back in the private equity hay-day years. In July of 2006, TPG and Leonard Green & Partners LP announced the acquisition of Petco for $1.8 billion.
Another boost from the deal is that the $1.8 billion price back in 2006 included the assumption of debt. At the time the deal was announced in 2006, Petco operated more than 800 stores in 49 states and the District of Columbia and operated its petco.com website.
Apparently the private equity billionaires did not just buy and repackage this one. Petco’s 2015 description noted that the company operates over 1,400 Petco locations across the U.S., Mexico and Puerto Rico — including more than 120 Unleashed by Petco locations. Monday’s announcement signaled that this acquisition is expected to close in early 2016.
The website PE Hub showed that TPG and Leonard Green had received big dividends along the way. A PE Hub story from October 5, 2012 said that Petco was raising $550 million in secured PIK notes to use the proceeds, plus roughly $75 million in cash, to pay out a $603 million or so dividend to shareholders and it noted that it was the second time Petco was paying out a dividend. They showed that Petco had issued about $1.7 billion in loans in 2010 to pay a dividend of up to $700 million to Green and TPG.
This would be hard to not chalk up as a major private equity success. Keep in mind that Petco had just recently filed for an initial public offering. That deal won’t be coming now.
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