How rumours start - Pets at Home for sale? Or the deal that never was
Top take out targets are all northern retailers
Hello Rainmakers,
Analysts at Panmure Liberum have named three Northern retailers most vulnerable to a private equity bid.
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Retailers on the block
In a note published this morning after a turbulent week for their share prices the vulnerable three top take-out targets are: Pets at Home, B&M and Card Factory.
They are characterised by significant free cash flow, are monetising their market shares and have strategies to exploit these further.
Rainmakers has long thought Pets is a likely target to return to private equity ownership, and the aggressive share buyback programme last year only makes this likelier.
Lest we forget, Pets has been owned by private equity before.
While the business was founded in Chester in 1991 by entrepreneur Anthony Preston, he sold to Bridgepoint Capital for £230 million in July 2004. In 2010 KKR then paid around £955 million for the business before floating it on the stock market in 2014.
Maybe this is a coincidence, but a company called Pug Bidco Ltd has been registered at the same London address as private equity firm BC Partners, which coincidentally also owns US pet retailer PetSmart.
As a bid to show confidence in the shares last year Pets at Home CEO Lyssa McGowan purchased a £100,000 block. The company had also sought to reassure shareholders by buying back its own stock last year.
The last set of results showed a 47% year-on-year rise in pre-tax profits to £51.1 million from £34.7 million on a revenue lift of £789.1m from £774.2m last year.
For Panmure, any take-out multiple should “comfortably start with a “4” in our view”.
They usefully remind us that BC Partners acquired PetSmart in a $8.7bn (£5.5bn) deal in 2014. Since then, Apollo has taken a strategic stake.
The rest of the case for a take-private is that animal care is a large and growing market –in 2022, consumers in the UK spent nearly £8.3bn on pet-related products, up nearly 100% growth in a decade. The market remains in growth up 7% in FY24. By sector this splits out as accessories at £1.6bn, food £3.5bn, veterinary £2.8bn and grooming £0.3bn. Within this food is growing at 7% and vets at 10%.
Pets at Home has a 23% share of the market and is the only business in the UK offering complete pet care to owners throughout the full pet care journey, seamlessly connected across all channels leading to a £178 average customer spend per year.
“The underlying KPIs are eye wateringly good. Retention rates are north of 100%,” the analysts say.
I’d add that the future upside for Pets looks good too. They have invested heavily in a digital transformation programme, including ecommerce and a distribution. So driving value through the one-digital platform could dramatically change the revenue and profitability model.
Card Factory, for Panmure, is also undervalued: “The company could embark, or maybe should embark on a share buyback considering how cheap the shares are. Spending roughly £26m p.a. on buybacks would equate to c.8%-10% of the current market.”
The case for B&M going private, in the week it fired its CEO after a profit warning, is linked to cash flow, store rollout potential in the UK and France, and an underappreciated gross margin rate.
While Pets could trigger the biggest multiple of earnings - 11 times, over B&M at 8.3 times EBITDA and a lower 5.4 for Card Factory, all would attract offers from a leveraged buyout modelling based on a 40% premium on current shares.
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Cooper Parry (CP) has stepped up its digital game by acquiring Front Foot, a marketing cloud intelligence specialist.
With 12 deals in 22 months, the Castle Donnington accountants are clearly not slowing down.
Front Foot founders Christian Osborne and Sam Eaton are now kicking it as CP’s new data & intelligence directors.
From AI-driven insights to a growing digital portfolio, this move may just be the perfect fit.
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Pinewood Technologies has driven home with a £33.3m deal this week, acquiring the remaining shares of Seez, a Dubai-based automotive AI company.
After investing £3m in September 2024, they’re now fully behind Seez’s AI-powered tools, ready to roll them out to dealers worldwide.
Formerly known as Pendragon, Pinewood was rebranded after selling its UK motor business to Lithia Motors for £397m.
Now, Pinewood is driving forward with Seez’s AI-driven solutions to enhance its Automotive Intelligence Platform and expand into North America.
Together, they’re gearing up for the future of smarter, more efficient automotive retail.
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While we cover many stories about long-established firms it's not often we feature a company with heritage dating back to...1587. (A year before the Spanish Armada set sail, if you're interested)
To be fair Sheffield-based Independent Forgings and Alloys (IFA) didn't actually exist then, but as the business points out the first known helve/tilt forging activity on its site does date back to when Queen Elizabeth I perched on the throne. IFA's predecessor company, Daniel Doncasters, was founded in 1778.
We reported this week that growth capital investor, BGF, has exited its investment in IFA after backing it back in 2018. Since then, IFA has more than doubled its annual revenues and grown the size of its production facilities.
Trive Capital, a US private equity firm with significant experience of the aerospace and defence sector, has acquired a majority stake in IFA. So here's to another 400 plus years!
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Also appearing will be Ruth Percival, CEO of Contollo Group, a buy and build consultancy group backed by private equity investor NorthEdge, who will be represented by Lucie Mills.
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James Salmon, Head of Financial Sponsors, Shawbrook who have to date delivered more than 60 transactions and structured over £600m in funding to support Private Equity Houses and their portfolios in the lower mid-market.
Also appearing to set the political backdrop to the eventful year just gone will be Karim Palant, head of external affairs at the BVCA, who has just returned from a trip to Washington DC.
So save the date for Rainmakers 2025 – Wednesday 26 March, 2025 – and secure your place today at The Point, Emirates Old Trafford, Manchester.
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