Perhaps most disconcerting about PetSmart’s struggles is they are coming even as Americans spend more on buying and taking care of their pets -- $70 billion in 2017, compared to $41 billion in 2007, according to the American Pet Products Association. Its first quarter with Chewy on board last year saw earnings fall almost 40 percent under the weight of debt.
its post-buyout CEO Michael Massey abruptly resigned, and has yet to be replaced eight months later. This year, Chewy’s founder and CEO Ryan Cohen quit too.
BC was so keen to prevail that it even bid against itself in the auction, raising its own final offer by 50 cents -- to $83 per share -- before any opponent had matched the lower price, according to court records from a subsequent lawsuit. Apollo, the next highest bidder with an offer of $81.50, or about $150 million less, later told PetSmart’s investment bank, JPMorgan Chase & Co., that it "never would have paid” what BC Partners did, a filing shows. JPMorgan declined to comment.
BC Partners managed to pocket an immediate $800 million dividend, but it had a long road ahead. The acquisition marked its first-ever foray into the U.S. retail sector. And the new management team had no experience with the pet industry.
One of Massey’s tasks was making a big e-commerce acquisition to retain customers moving online. He zeroed in on Chewy.com, an online supplier with loyal customers and workers it called ‘Chewtopians.’
Massey reasoned that Chewy would establish a defensive line against Amazon and shore up earnings that had sagged since the takeover. But the plan backfired. PetSmart’s financials deteriorated even more sharply as Chewy, which has yet to turn a profit, dragged on earnings. In the third quarter of 2017, the latest available, the combined companies lost $56 million.
TL;DR: Extremely aggressive leveraged buyout is causing PetSmart to stumble even in a growing pets' goods market, and expanding to e-commerce only made the losses worse.
Submitted April 25, 2018 at 09:28AM by COMPUTER1313 https://ift.tt/2vK31Oe
