PetSmart distributes $800m to BC Partners and co-investors

The British PE firm is returning capital to investors less than a year after its $8.7bn acquisition of the US pet products retailer.

US pet products retailer PetSmart is distributing $800 million to its equity holders, which include London-based private equity firm BC Partners.

A source with knowledge of the matter told Private Equity International that PetSmart is performing beyond expectations, and the $800 million distribution comes from cash generation within the business.

BC Partners declined to comment.

BC Partners agreed to acquire the business in December 2014 alongside 30 of its limited partners, including CDPQ and StepStone, in an $8.7 billion take private deal, one of the largest private equity deals of that year. Existing shareholders received $83 per share in cash as part of the transaction, which completed in March 2015.

The firm fought off stiff competition from bidders including Apollo Global Management, KKR and Clayton Dubilier & Rice to acquire PetSmart using capital from its BC European Capital IX, a 2010-vintage, €6.68 billion vehicle. It is understood that co-investments totalled $1.2 billion.

The transaction was underwritten by Citigroup, Nomura, Jeffries, Barclays and Deutsche Bank, PEI reported at the time.

Since the acquisition BC Partners has reduced PetSmart’s net debt to 5.5x EBITDA from 6.4x EBITDA at investment, it is understood. Additionally in May 2015 part of the company’s loan package was repriced, which resulted in cost savings of $70 million in annual interest expenses.

Having acquired PetSmart, BC Partners installed retail industry veteran Michael Massey as president and chief executive officer with a mandate to restructure the business and overhaul its management team.

It is understood that BC Partners and Massey put together a value creation plan focused on both short-term improvements, including improving procurement and product sourcing and creating a more efficient and transparent project management process, and long-term initiatives such as tailored product offerings depending on location and an improved e-commerce platform.

BCEX IX is understood to have seen LP co-sponsorship and co-investment totalling €2.8 billion to date, and includes the firm’s $6.5 billion acquisition of US cable operator Suddenlink alongside CPPIB; animal identification business Allflex, which it acquired from Electra Partners for $1.3 billion; Springer Science + Business Media, which it acquired from EQT Partners and the Government of Singapore Investment Corporation for around €3.3 billion; pharmaceuticals and health care industry service provider Aenova Group, which it acquired from Bridgepoint; and Accudyne Industries, which it acquired alongside The Carlyle Group in a $3.4 billion transaction.

BC Partners will be keen to return capital to investors as it continues fundraising for its tenth vehicle, which is targeting €7 billion, as reported by PEI.

BCEC IX had generated an internal rate of return of 1.06 percent for CalSTRS as of March 2015 since inception, according to the pension fund’s last published private equity fund performance figures. BC European Capital VIII, a €5.9 billion, 2005-vintage vehicle to which the pension system committed $604 million, had generated an IRR of 4.11 percent as of March last year.

The firm’s eighth and ninth funds together have generated proceeds of more than €3.5 billion over the 12 months to June 2015, a source familiar with the situation said. The net IRR was 10 percent for BCEC IX and 6 percent for BCEC VIII as of 30 September.