Live Deals: Leonard Green and TPG Acquire Petco –

Retail specialist Leonard Green & Partners LP in partnership with Texas Pacific Group this month agreed to acquire Petco Animal Supplies Inc., a retailer of pet food, for an estimated $600 million.

Goldman Sachs Group Inc. and Wells Fargo Bank NA have been hired by the private equity firms to provide $400 million in senior debt financing for the transaction. Trust Co. has also committed mezzanine financing for the transaction.

Following the deal, both Texas Pacific and Leonard Green will hold a majority stake in the company.

“I got to know the company as an investment banker 13 years ago, and I’ve followed the company ever since then and their performance has been somewhere between excellent and spectacular,” said Jonathan Coslet, a partner at Texas Pacific. “The stock price for the company has gone down recently, trading a low as $10 to $11 per share, so we approached the company and told them they were undervalued and they agreed. We were able to make something happen that worked for shareholders, management and for us as well.”

Coslet said valuations for most retailers have declined dramatically, whether it be Petco or Abercrombie & Fitch. “Retailers began declining because of the threat of the Internet, and the fear that they would be crowded out of the public market. As those fears have subsided, now there is also the fear of rising interest rates, which is well taken. But the multiples for all retailers, in general, have declined astronomically,” he said.

Petco Animal Supplies is based in San Diego, Calif. and had annual revenue of approximately $990 million last year.

“This is a company that has been doing everything right,” Coslet said. “The CEO of the company is a great operator and a merchant. Usually it is hard to find those types of people, because you’re either going to get a good operator or a merchant, but not a combination of both. The demographics for the company are also excellent, spanning between the baby boomers and their teenage children. And really what we need to do is more of the same.”

Other branded retail investments made by TPG include J. Crew and Bally.

Animal Farm

This investment marks the second such foray in the pet care sector by Leonard Green. The firm last month invested $327 million in Veterinary Centers of America, owner of 197 animal hospitals nationwide (BUYOUTS April 17, p. 20).

An international private equity firm, Texas Pacific has made investments in a broad range of industries including consumer products, health care, airlines, food and beverage, and oil and gas. Leonard Green invests in leveraged acquisitions, management buyouts and recapitalizations.