PetSmart, the pet-supplies retailer, has been bought out by a consortium of investors for $8.7 billion. This marks the largest acquisition deal of 2014.
PetSmart said that the investors have agreed to pay $83 per share in an all-cash deal, a 39 percent premium over its closing price on 2 July, the day before they announced they were looking for a buyout option.
The consortium is led by BC Partners, a London-based buyout firm, which reportedly swooped down on the deal last minute, overthrowing Apollo Global Management's $8 billion bid for PetSmart.
"We are very pleased to add PetSmart to our portfolio of investments. PetSmart is an iconic brand and the category leader in the growing pet retail industry," Raymond Svide of BC Partners was quoted by CNN Money.
PetSmart decided to sell as it was hit hard by competition from bigger retailers like Walmart and Amazon. Its third quarter net income was just $92.9 million and sales rose just by 2.6 percent. A buyout decision was a calculated, strategic one.
"This transaction is a testament to the strength of the PetSmart brand and franchise and reflects the dedication and commitment of our 54,000 associates to serving our customers and delivering value for our company and our shareholders," David K Lenhardt, PetSmart's president and CEO said, according to CBC.
The deal isn't just the largest acquisition agreement this year but also marks a rare case where a private equity firm bought out a publicly traded company, The Wall Street Journal notes.
Before the financial crisis of 2008, buyout firms teamed up to make struggling public firms private. However, that changed after the economy went into depression with buyout firms getting more cautious about which companies to invest in.
Experts said the current buyout scenario is "overpriced." But BC Partners argue that the PetSmart deal is "different" from other buyout deals because the firms have considered PetSmart's cash flow and leverage points that bode well for investors, banks and regulators as well.
Several strategic changes and more than $200 million worth of cost-cuts have been planned for PetSmart.
"I'm not sure you'll see meaningful changes at PetSmart. The way this company has been managed, that will show in the financial performance over the next few years," Raymond Svider, a managing partner at BC told The Journal.