Pets at Home

Pets at Home, the UK’s biggest pet products retailer, has launched a listing on the London Stock Exchange in a move that could value the seller of cat collars, dog coats, rabbit hutches and even rabbits themselves, at about £1.5bn including debt.

The company, which was acquired by private equity group KKR for £995m three years ago, joins a number of retailers looking to tap investor appetite for consumer stocks amid signs of recovery in the UK economy.

Business Blog on pet product IPOs

Andrew Hill

It is probably unfair to draw a parallel between Pets at Home, with its real stores, real turnover and real earnings, and Pets.com, the US pet products etailer that was one of the dotcom bust’s most notorious flame-outs, writes Andrew Hill. But the ghost of Pets.com’s sock-puppet mascot haunts the latest plans for initial public offerings

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Pets at Home said on Wednesday it planned to offer shares to retail investors, as well as institutions. It plans to raise £275m from the offering, which it will use to pay down debt. It will also use £325m from new banking facilities to cut debt.

Pets at Home is looking to tap into Britons’ growing pet obsession. The group hopes it can expand to 500 outlets – up from 369 – opening about 25 new stores a year. It also hopes to almost treble the number of vet practices it operates, from 246 to more than 700 over the medium term.

Although Britons already spend about £5.4bn a year on their animals, Pets At Home are betting that UK pet owners will follow their US counterparts in splashing out increasing amounts of cash on their animals – whether buying their mutts grain-free dog food or pampering their pooches with doggy grooming.

Pets at Home has more than 100 grooming centres, which it hopes to expand to 300 in the coming years, as Britons start to spoil their pets more.

Lombard: Pet shop boys

Jonathan Guthrie
© Financial Times

It is the variability of Mom ‘n’ Pop businesses that creates an opportunity for corporate consolidators rather than their average quality. If you have visited an independent pet store where escaped mice were gnawing the dog biscuits and goldfish were chillaxing belly up in the water, you might give Pets at Home a try, writes Jonathan Guthrie.

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Underlying this is the trend towards treating pets more like people, with specialist diets and fancy shampoos that supermarkets will not always be able to stock. “Nutrition is more advanced, grooming is more advanced – the ‘humanisation’ trend will drive more opportunities for specialists,” said Nick Wood, chief executive.

Pets at Home has also beefed up its loyalty scheme, which has 1.5m members – who in total own 1.4m dogs, 1m cats and a couple of million fish – after it launched in late 2012. About 93 per cent of Pets at Home staff own pets themselves, while Pets at Home’s board owns 10 dogs, three horses and one cat between them.

In the announcement of its intention to float, it pointed to a 9 per cent increase in sales and a 7 per cent rise in underlying earnings during the past three years.

Sales in the 40 weeks to January 2 rose 11.7 per cent year on year, with sales from stores open at least a year up 2.4 per cent and underlying earnings before interest, tax, depreciation and amortisation up 11.1 per cent to £87m. The company is forecasting underlying ebitda of not less than £110.2m for the year to March.

KKR owns the majority of the company, with management having 10 per cent, while several individuals, including founder Anthony Preston, have small stakes. They are expected to sell down in the float.

About 500 individuals hold the management stake including store mangers. They will make an average of £240,000 each from the float, although senior managers will have the biggest holdings.

However, some investors remain sceptical of private equity-owned retailers after Debenhams came to market in 2007 and then issued a series of profit warnings.

Nick Bubb, the independent retail analyst, said: “Pets at Home is a very good business, but it has been through private equity a couple of times. [We will have to] see what is left in locker.”

But Mr Wood said: “Every IPO is different. This business in particular has had a significant amount of investment over the past few years to expand . . . We have invested over £120m in new stores, new distribution facilities, development of the VIP Club.

“All of these things give us a strong opportunity to expand the business forward, and an opportunity for public shareholders as well as existing shareholders to do very well.”

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