Did PetSmart wait too long to make a SPAC deal?

Pet ownership has never been so popular. Nearly one in five Americans acquired a new pet during the pandemic, according to the ASPCA. And taking care of all those new furry friends doesn’t come cheap. They need food. Toys. Leaves. They need training, child care and health care. As many have learned over the past couple of years, pet care doesn’t come cheap.

That is why PetSmart think now might be the time to go public. Boasting a larger potential customer base than ever before, the pet store powerhouse is in talks to combine with a SPAC sponsored by KKR, according to a Blomberg report this week, with the potential to hit a $14 billion company valuation if a deal goes through. That’s a nice premium over the $8.8 billion price tag that BC Partners paid PetSmart in a buyout in 2015.

But one question looms over PetSmart’s potential plans: Has it waited too long for a return to the public market?

PetSmart is a 35-year-old company well known for its pet care supermarkets. Over the past decade, however, as online shopping increasingly dominates the retail industry, a supermarket-based business has become a little less appealing. So in 2017, BC Partners and PetSmart decided to diversify by acquiring online pet care specialist Chewy for $3.35 billion, marking what was at the time the largest acquisition ever in the industry. an e-commerce brand.

It quickly became clear that the case was a home run. Chewy’s earnings jumped and it went public about two years later, hitting a valuation of nearly $9 billion. Its shares soared about 60% on their first day alone, taking that figure to more than $14 billion.

Less than a year later, the pandemic began. The business of selling pet products online was already attractive; suddenly, it became a model that investors could not ignore. Between March 2020 and February 2021, Chewy’s share price soared over 350% and its market capitalization soared to nearly $50 billion.

But as the closings and store closings of the early pandemic abated, the market began to change. Investors realized they could have gotten away with it on their skis. Over the past 12 months, Chewy’s stock has fallen almost 70%, to $38.05 per share at the time of this writing. With names like Platoon and netflix, it serves as a prime example of the ongoing correction in some stocks fueled by the pandemic, as some of the trends that have propelled business at these companies in 2020 show signs of reversal.

It’s not like Chewy is in trouble. But it’s no longer one of the hottest companies in the world.

And that fact surely has implications for PetSmart and its eventual SPAC deal. A valuation of $14 billion would certainly be a solid multiple for the company and its private equity owner. But based on the way Chewy’s valuation soared and then plunged, it’s hard not to think PetSmart could have fetched a much higher price had it planned a merger this time last year. .

I’m unaware of all the machinations going on in the Phoenix-based company’s boardroom. PetSmart executives surely have their reasons, and a combination with the KKR-backed SPAC — which raised nearly $1.4 billion in an IPO last year — could have a lot of appeal. Timing isn’t everything. But the whole thing is a reminder that when it comes to debuting in public or lining up some other type of release, it can certainly cost billions of dollars.

Just something to chew on.

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