Atlanta Shop Delves Into Pet Retailing Sector

Target: Pet Valu Inc.

Price: C$143.7 million ($123 million)

Sponsor: Roark Capital Group

Seller: Pet Valu Inc.

Financial Adviser: Sponsor BMO Capital Markets; Seller: TD Securities Inc.

Roark Capital Group is looking to take its specialty of buying franchises into a new area—the pet industry—with its purchase of Pet Valu Inc.

The Atlanta-based buyout shop agreed on July 6 to acquire the Canadian pet supply retailer for C$143.7 million ($123 million). As part of the deal, Roark Capital renegotiated Pet Valu’s existing debt package, which is reportedly less than 3x EBITDA, with TD Securities Inc.

Roark Capital professionals had been evaluating opportunities in the pet industry for two years, drawn to the stable long-term demand from pet store customers and steady growth, even in tough economic times. “People still feed their pets, even in a recession,” Ezra Field, managing director, told Buyouts.

Founded in 1976, Markham, Ontario-based Pet Valu sells pet food and other pet-related goods from 295 stores in Ontario and Manitoba, as well as from 61 stores in Pennsylvania, New Jersey, Maryland and Delaware. The company has been weighing its strategic alternatives since March 2008.

Shareholders in Pet Valu, which trades on the Toronto Stock Exchange, will receive $13.68 in cash per share if the deal closes as expected in the third quarter. Geoffrey Holt, Pet Valu’s founder and CEO, plans to retire after the deal closes.

Going forward, Roark Capital has identified a number of growth initiatives for the company, though executives at the buyout shop and at Pet Valu have not yet agreed on a tentative plan. “Exactly how to prioritize the initiatives is something we would have to sit down and speak with management about,” Field said. The deal process, he added “is not a dynamic in which to refine a collective plan of action. It’s more of a learning process.”

Pet Valu management is not allowed to solicit competing proposals under the terms of the agreement, though it can respond to unsolicited superior proposals. Should that happen, Roark Capital has the right to match any higher offer.

Assuming the deal closes as scheduled, equity will come out of Roark Capital Partners II LP, a $1 billion fund the firm closed in February 2008. The firm’s most recent acquisition closed this past February, when it bought Atlanta-based home flooring company Simply Floored LLC.