Petco – PetSmart merger rumors: Good or bad for America’s pets?

mnatoday-petcopetsmartmergerThe rumor has been going on for a while now but, this time, rumor has it that PetSmart and Petco are, once again, officially discussing a possible merger at the parent’s level – Private Equity funds BC Partners on PetSmart’s side and TPG Capital and Leonard Green & Partners on Petco’s side.

It’s actually quite logical.  On the one hand, TPG and Leonard Green have had a 15 year love story with Petco, taking the retailer private in 2000, IPO’ing it in 2002 just to that they could take it private again in 2006. Apparently, they remained active shareholders too in the 2002-2006 period. Since the last take private deal, Petco has been in their portafolio for 9 years now, quite a while in PE terms… The recent preliminary IPO filings – see Forbes and WSJ for more details – just confirm that need for an exit.

On the other hand, PetSmart, as the leading pet retailer in the US, most certainly would be thrilled to absorb Petco as both a way to get rid of the incumbent and to fuel its growth. It’s not like it’s the first time this idea was put on the table and, having been recently taken private, they are right in that sweet spot when the post-acquisition period – and associated changes – are now in place (or in ‘advanced’ process) and the company can start to look for acquisition opportunities.

Still, the prospect of a merger between the 2 retailers leaves me a bit perplex and makes me wonder what could be the impact for consumers… and their pets…

Should Walmart acquire Whole Foods, what percentage of the organics grocer’s customer base would be thrilled reading the news? And how many of its suppliers?

I think the same question applies here. Not that Petco is the exact Whole Foods of the Pet Retail space, but it’s focus, assortment, price point and closer customer service certainly are closer to Whole Foods’ than PetSmart… and with respect to comparing PetSmart to Walmart, I believe that PetSmart’s volume-based, price-pinching approach and its constant arm-wrestle with its suppliers are close enough to Walmart’s ‘core values’.

Sure, adding 1,400+ locations would do a great job at boosting sales and market penetration but I do foresee quite a cultural clash down the road should the rumored merger take place… or am I wrong?

azz B