January 17, 2022

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Zooplus: private equity plays fetch

Retail sector updates

Private equity has on occasion been put in the doghouse over its penchant for snapping up undervalued assets and piling on debt. Not so Hellman & Friedman. The global firm is buying Zooplus, a European pet care ecommerce group whose share price has almost doubled in the past 12 months.

Pet care is on a roll thanks to the boom in lockdown puppies, cats and rabbits. Illustrating the embrace of furry friends, the UK added pricier dog treats to the inflation basket last year. Shares in Zooplus and US peer Chewy have more than tripled since the pandemic began.

But the world of petcare is more dog eat dog than those numbers suggest. Zooplus’s growth is robust but its shares have badly lagged behind peers. So has customer performance, with Amazon and others competing to deliver dog food to doorsteps. Even at 20-plus years old Zooplus is hampered by handicaps associated with more youthful companies, including high customer acquisition costs, while squeezing out a profit.

Still, H&F is hardly scrimping. The €390-per-share offer represents a 40 per cent premium over the previous three months’ average and about 34 times its 2022 estimated ebitda. Exact peers are thin on the ground. Pets at Home has physical stores and fast-growing Chewy serves a single market rather than 30 in Europe.

The private equity firm will hope to make returns employing patient capital and growth. Investing in marketing, logistics and diversified product mix will help lift the top line even if it pummels margins in the shorter term. That will completely reverse the current strategy. Zooplus, despite sitting on €130m of net cash, has more than halved marketing spend to 1.5 per cent of revenues last year, notes Jefferies, a fraction of Chewy’s. 

H&F, which seeks a simple majority, has secured irrevocable undertakings from 17 per cent of the shareholder register. Still, its bid could unleash a scrap for the online retailer. Shares on Friday traded a whisker above the offer price.

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