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Petco’s IPO Raises $939M

With consumers willing to open their wallets for companion animals in a pandemic year, Petco Health and Wellness Co. Inc. staged an initial public offering Jan. 13, raising $939 million.

The pet supplies and services company sold 48 million shares of Class A common stock at $18 per share, above the expected public offering price. On the open market, shares began trading at $26, rose above the $31 mark and settled around $26.

Petco shares trade on the Nasdaq under the ticker symbol WOOF.

The corporation, which reported $4.4 billion in revenue last year, has gone back and forth between private ownership and being traded on the stock market. This is its third time going public.

Roughly 22% of Class A stock will be held by the public. Other investors hold the balance of Class A stock as well as two versions of Class B stock.

Today the business runs 1,470 pet food and supply stores, which have converted to curbside pickup and BOPUS (buy online, pick up in store). It reports its digital business is “growing at a strong rate.” Petco has more than 100 veterinary hospitals attached to stores and is taking an “aggressive” approach toward building out that network, according to CEO Ron Coughlin.

Growth Seen Ahead

Petco says that it expects its market to grow at 7% per year between 2020 and 2024.

“Suffice it to say, our business was strong before the pandemic, accelerated during the pandemic, and we expect it to continue to grow at an accelerated rate long after the pandemic passes,” said Coughlin in a note to potential shareholders in a securities filing.

Petco declined to comment for this story, saying it was in a quiet period mandated by securities regulators.

Others are seeing success in the same space. In June 2019, online pet products provider Chewy (NYSE: CHWY) raised $1 billion in its IPO. Shares priced at $22 began trading for $36. More recently, in September, the Florida-based business had a follow-on offering of 5.1 million shares at $55.25 per share. Chewy shares closed Jan. 15 at $108.11.

Market Demand

Petco told securities regulators that it planned to sell its shares in the $14 to $17 range.

On Jan. 14, the initial day of trading, shares opened at $26 and hit a high of $31.08 before closing at $29.40. Some 52.1 million shares traded hands. The following day, Jan. 15, shares closed at $27.71.

Net proceeds from the IPO were approximately $939 million, after deducting underwriters’ discounts and commissions. Petco said it plans to use proceeds of the offering to pay down debt. Its floating rate senior notes, maturing in January 2024, had a weighted average interest rate of 9.1% as of Oct. 31. In addition, it has a term loan maturing in January 2023 with a weighted average interest rate of 4.3%. as of Oct. 31.

In 2019, Petco reported a net loss of $95.9 million on revenue of $4.43 billion. It reported a net loss of $413.8 million on revenue of $4.39 billion in 2018.

For the first nine months of 2020, Petco reported a net loss of $20.3 million on revenue of $3.58 billion. During the same period one year ago, the company reported a net loss of $88.7 million on revenue of $2.39 billion.

Goldman, BofA Lead

Goldman Sachs & Co. LLC and BofA Securities are joint lead book runners for the offering. Citigroup, Evercore ISI, Credit Suisse, UBS Investment Bank and Wells Fargo Securities are joint book runners, and Baird, Guggenheim Securities, AmeriVet Securities, C.L. King & Associates, R. Seelaus & Co. LLC, Ramirez & Co. Inc. and Siebert Williams Shank are co-managers for the offering.

Gibson, Dunn & Crutcher LLP is serving as legal counsel, along with Latham & Watkins LLP.

Petco’s underwriters exercised a 30-day option to purchase up to an additional 7.2 million shares at the public offering price, less underwriting discounts and commissions.

Petco registered to go public in the summer of 2015, but was acquired by CVC Capital Partners and Canada Pension Plan Investment Board for $4.6 billion in November of that year. The sellers at the time included the private equity firms TPG and Leonard Green & Partners.

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