Woolworths Group (ASX: WOW) has wasted no time in allocating the proceeds from the sale of $636 million worth of shares in its bottle shop spin-off Endeavour Group (ASX: EDV), announcing today it would be acquiring 55 per cent of Petspiration Group.
The $586 million cash consideration will give Woolworths a majority interest in the owner of leading retail brand PETstock, which has 276 stores and established e-commerce platforms such as Pet.co.nz, its own brand range including Caribu and Glow, and a 2.4 million member-strong loyalty program.
Assuming net debt of approximately $670 million, this implies an enterprise value of approximately $1.7 billion for the pet retail specialist.
Over the 12 months to September, Petspiration notched $979 million in sales with an EBITDA of $158 million, implying an 11x EV/earnings multiple for Woolworths' investment.
The transaction is expected to achieve a mid-teens internal rate of return, even though the acquirer forecasts some moderation in the current strong growth rates for the specialty pet sector post-COVID.
The remaining 45 per cent stake will be held by Petspiration's founders Shane and David Young alongside other existing shareholders. Both will remain as CEO and managing director respectively, running the company as a stand-alone business within Woolworths Group, under a separate board and governance structure.
"This is a unique opportunity to partner with Woolworths Group to continue to grow and strengthen the business we founded in Ballarat just over 30 years ago," says Shane Young.
"We will operate independently of Woolworths Group but will work closely together through our common values to deliver on all the opportunities we have to jointly create value for our pet families and supplier partners."
The group's newly appointed managing director of W Living, Von Ingram, is tasked with "bringing the partnership to life and unlocking the value creation opportunities" across the Woolworths Group.
Woolworths CEO Brad Banducci says specialty pet is a large and growing retail segment in which the group has a limited presence.
"We are delighted to be investing alongside founders, Shane and David Young, in Petspiration, the number two player in the segment," he says.
"Specialty pet is a logical adjacency given the high penetration of pet ownership across Australia and New Zealand.
"The partnership will allow us to meet more of our customers’ pet family needs with a complementary range of specialty pet products and services, strengthen the Everyday Rewards loyalty program and unlock opportunities for material value creation across both businesses."
The transaction remains subject to customary closing conditions including ACCC and NZCC approvals with completion expected in mid calendar 2023.
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