Petco’s Private Equity Owners Turn to Dual-Track Process


September 4, 2015


One of the terms that currently keeps popping up in private equity news is dual-track process. Many private equity firms are looking at initial public offering (IPO) at the same time as talking with potential bidders in order to exit their investments. The latest firms to do so are TPG Capital and Leonard Green & Partners, as they are looking to exit from Petco.


IPO or Sale?


The animal food retailer Petco, owned by private equity firms TPG Capital and Leonard Green & Partners, announced its plans to list on the stock market in mid-August. The company filed for initial public offering, just months after America’s other big animal food retailer PetSmart was sold in a buyout led by the investment firm BC Partners.


As the listing news spread across the globe, many saw it as a great opportunity for the private equity owners to cash out from the company. TPG Capital and Leonard Green & Partners bought the firm in 2006 in a deal worth $1.8 billion. At the time, further details, such as the price of listing, were not mentioned.


This week, however, reports suggested the company might be talking to other private equity firms. The Wall Street Journal first reported on insider reports that firms, such as KKR, are talking with the company while the IPO plans are on-going.


Interestingly, the two private equity firms have been the owners of Petco twice. The firms bought the company, founded in 1965, for $600 million in 2000 and took it public in 2002. As mentioned, they took it private again in 2006.


Weighing the Options


Dual-track process has become a favoured option for many firms, especially as company valuations remain high and the stock market continues to be jittery. In terms of TPG Capital and Leonard Green & Partners, selling Petco to another firm could provide a much quicker and a more guaranteed way of making a profit.


The company has done well under the private equity ownership. Its sales have steadily been on the rise, although profits have witnessed volatility. The company announced during its IPO filing that it made $75.3 million in 2014, which was a decline of 11% for profits in 2013.


While there is no official announcement yet and the parties have so far remained silent, a possible sale could value the company at $3 billion. The price could be high also because it is likely more firms are part of the discussion, meaning bidding might drive up the price.


Increasing Focus on Dual-Track Processes


Petco’s private equity owners are among many firms currently going through a dual-track process. Silver Lake Partners and Warburg Pincus are looking for a seller while also preparing for an IPO with Interactive Data Corporation. The potential valuation of IDC could eventually lead for a listing, but time will tell.


Furthermore, Australian private equity firm Archer Capital recently acquired the New Zealand company Aspire2. Goldman Sachs had dual-track process on going as it sold the company to the private equity firm.

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