Petco hasn’t learned new tricks under TPG and Leonard Green, UNITE HERE says

Despite years of private equity ownership, Petco lags its chief
competitor, PetSmart

SAN FRANCISCO–(BUSINESS WIRE)–TPG Capital and Leonard Green & Partners recently filed to take pet
supply retailer Petco public, and filings disclose a recent decline in
cash flow growth and sales metrics that trail its chief competitor,
PetSmart, according to UNITE HERE.

TPG and Leonard Green have owned Petco for 12 of the past 15 years
through two ownership stints. Over that period, Petco has lagged its
rival, yet the private equity firms have extracted $1.7 billion in fees
and dividends, UNITE HERE found.

The full report is available here:

The hold period of Petco for nine years far exceeds the private equity
industry average for portfolio companies, which in 2015 dropped to 5.5
years, according to Preqin.1

TPG and Leonard Green also opted to hold Petco through the recent period
of exits by their private equity peers. In 2014, Preqin recorded 1,686
exits with an aggregate value of $442 billion, both record figures.2

Despite Leonard Green’s expertise in retail, the sales and operations
figures for Petco show that the firm hasn’t gained much ground on its
chief rival, PetSmart during its years of private equity ownership.
Indeed, Petco has seen some key margins slip during the period.

  • PetSmart’s 2014 sales of $7 billion were about 40% greater than
    Petco’s 2014 sales of $4 billion.
  • Since 2005, PetSmart has seen its operating and EBITDA margins expand.3
    Petco’s operating and EBITDA margins shrunk over the same period.4
  • Petco’s EBITDA growth has slowed significantly since 2012. Between
    2011 and 2012 Petco’s EBITDA grew by 25%. It grew by just 3.8% and
    0.7% in 2013 and 2014.
  • PetSmart also generated a higher operating margin of 9.12% compared to
    Petco’s 7.02%.
  • TPG and Leonard Green have loaded on additional debt to Petco in a
    series of dividend recapitalizations.

1 Preqin, “Private
Equity Firms See First Fall in Buyout Holding Periods Since Financial
,” May 14, 2015.
2 Preqin, “Private
Equity Firms See First Fall in Buyout Holding Periods Since Financial
,” May 14, 2015.
3 PetSmart form 10-K, 2005;
PetSmart form 8-K, Feb 12, 2015.
4 Petco form 10-K,
2005; Petco prospectus, SEC S-1, filed August 17, 2015.


Alyssa Giachino, 310-795-5537