Pet Supermarket Purchased by Roark in Private-Equity Auction

NEW YORK (The Deal) -- In the latest of what's become a slew of pet retail-related transactions, Pet Supermarket founder Charles "Chuck" West on Thursday sold the purveyor of premium pet foods to Atlanta private equity firm Roark Capital Group for a valuation that sources expect to be as high as $480 million.

While financial terms of the transaction weren't disclosed, the privately owned specialty retailer of pet products in the Southeast generates north of $300 million in sales, according to Thursday's announcement.

Pet Supermarket, founded in 1973 by West as Pet Circus, became Pet Supermarket in 1986. The Sunrise, Fla.-based retailer runs 155 specialty pet stores that offer holistic pet food and supplies, as well as vaccinations for dogs, cats and various small animals, including hamsters and tropical fish.

The sale process for Pet Supermarket was robust and included only private-equity firms, according to one source who asked to remain unnamed. Pet Supermarket declined to engage with strategic buyer, Phoenix-based PetSmart, that source said. Another unnamed source indicated that the sale process got underway late last year.

Pet Supermarket likely generates between about $25 million and $40 million in annual EBITDA, and the deal was likely valued at upwards of 10 and 12 times EBITDA, according to these unnamed sources.

On the high end, that would put a potential price tag at about $480 million, or $250 million on the low.

While its unit economics were compelling, the timing for a sale was logical because Pet Supermarket didn't necessarily possess the infrastructure required to take it to the next level, one of the sources said.

A valuation in the range of 10 to 12 times, while on the high end when compared with recent deals in the pet industry, was fair given Pet Supermarket's already strong market share and the significant room it has to grow, the second source added.

It's been a busy six months in the pet retail space.

Petco Animal Supplies, backed by Leonard Green & Partners and TPG Capital, agreed on Nov. 19 to buy Foster and Smith, which, a source previously told The Deal, generates about $250 million in annual revenue.

When a BC Partners-led consortium bought PetSmart for $8.7 billion on Dec. 14, it paid about 9.1 times the target's EBITDA, though that was more of a turnaround story. At its current large size, PetSmart doesn't have as much room to grow.

In 2015, J.M. Smucker (SJM) on Feb. 3 completed the acquisition of Big Heart Pet Brands in a cash and stock transaction valued at about $5.8 billion. And on April 2, Advent International offloaded Partner in Pet Food to Pamplona Capital Management for $341 million.

For Roark, known for its expertise in multi-unit retail and service companies, the acquisition will nicely complement its existing presence in the pet category, which it penetrated via its acquisition of Pet Valu -- the largest franchisor of micro box retail locations in Canada.

Roark successfully took Markham, Ontario-based Pet Valu private for C$143.7 million ($123.9 million) on Sept. 2, 2009, and on April 21, 2010, bought Bosley's Pet Food Plus as an add-on deal, giving Pet Valu a presence in Western Canada.

The purchase price for Bosley's, which concentrates on pet health and wellness, wasn't disclosed.

"Roark now has an opportunity to take something that's pretty substantial and make it the No. 3 player in the marketplace," said Bryan Jaffe, a managing director at Cascadia Capital who concentrates in the pet products sector, by phone. "The reason [Pet Supermarket] probably picked Roark is [that] they probably could bid more, but they also probably picked Roark because they believe Roark can take this concept and make it a national concept."

Jaffe noted that while the pet industry has experienced substantial growth as consumers upgrade the quality of pet food over the last three years -- with annual growth of about 4% to 5% each year -- industry revenue has grown significantly even while the number of pets has grown minimally.

"We're starting to see that trend taper," Jaffe said about the number of pets. "At the same time, we're seeing conventional grocery increase pet offerings. [Pet Supermarket] is a concept that is essentially in the middle and stands to enjoy outside growth and potential growth via franchising. That makes it compelling."

Officials with Roark and Pet Supermarket couldn't be reached on Thursday.

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