Petco has gone publicagain. The one-time public-turned-private company has decided that theyre going to return to their ways of old, and become a publicly traded entity once more.
It takes a painstaking amount of work, time, effort, and planning to even begin considering the move to go to market. To do it all a second time? Thats a hook that only a few of the worlds most successful companies can hang their hats on. Heres what you need to know about Petcos second IPO, including information on funding, the motive behind the decision, and important facts and figures about the companys competition.
TL;DR
- Petco hit the market as a publicly traded company for the third time in company history on January 14, listed on the NASDAQ under the ticker symbol WOOF.
- This is Petcos third time transitioning from a privately held company to a publicly traded one via an IPO. The first time was in 1994, and the second time was in 2002, when it traded on the NASDAQ under the PETC ticker symbol.
- Wall Street analysts have identified the consumer pet industry as one that is largely resistant to changes in the overall health of the economy. The industry saw a strong increase in demand during the coronavirus pandemic, as many families stuck at home for extended periods of time decided to add a pet to their family.
- With Goldman Sachs and Bank of America Securities as the lead underwriters for the IPO, shares were sold at $18 each, with a total amount of roughly $864 million raised in new funding.
Related: What is an IPO?
A quick company history of Petco
Petco began in San Diego, California in 1965 as a mail-order company supplying veterinary items across the west coast. Fast forward to 1980 and Petco opened its first brick and mortar store outside of the state in Tigard, Oregon.
More than a decade later, the year 1992 brought expansion to the eastern shore with the companys first store in New Jersey, which stimulated growth toward an enterprise level. By 1994, Petco was the countrys largest pet specialty retail chain. This same year, the company went public for the first time.
At the time, the chain had 218 stores across 13 states, and had sales revenue of more than $189 million. With the addition of in-store grooming services, a loyalty rewards program, and the forming of a non-profit arm (The Petco Foundation), the company experienced continued success throughout the year 2000, when after six years of being on the market, Leonard Green Partners and Texas Pacific Group (TPG) completed a leveraged buyout of the company, taking it private again.
This ownership agreement would last until 2002, whenyou guessed itPetco went public for a second time. While trading under the ticker symbol PETC (again), the company experienced further growth for four years, until 2006. At this point in time, TPG decided to once again guide the company to private ownership, taking the now 800-store, 18,000-employee company off of the Nasdaq Exchange.
Now, weve just witnessed Petcos third (repeat: third!) IPO in company history, coming on the heels of an IPO-filled 2020.
The idea of going public multiple times isn’t reserved for just Petco. The company McAfee went public for a second time after being acquired byand later spinning off fromIntel.
Petco’s freckled fundraising: The highlights
What with going public thrice, it makes sense that Petco fundraising would be variedsplit between public and institutional funding. During this most recent IPO, Petco raised roughly $864 million from selling newly issued shares at $18 a piece. Initially, the company had established a target price of $14$16 per share, but the demand observed in the market allowed them to increase that price. This IPO marks Petcos strategic transition from being a retailer of pet food and other supplies to a fully fledged pet care center, with many locations having in-house veterinarians, groomers, and training services.
In Petcos previous IPOs, funding came in large part from their majority owners. Petcos new majority owners, as of early 2016, are CVC Capital Partners and Canada Pension Plan Investment Board (CPPIB), both of which retained their ownership stake this go around.
Path to the Petco IPO
In the summer of 2020, the coronavirus pandemic was in full swing. Across the board, industries were suffering. Of the few markets that seemed to be resistant to this downturn was that having to do with pets. In fact, companies catering to pets largely grew across the board.
Take Chewy, for example. A Petco competitor, Chewy had their IPO during the summer of 2020. They had a $9 billion valuation at the time, and are now worth over $46 billion dollars.
Riding on tails of an incredibly successful year for IPOs (pun intended), Petcos decision to leverage a growing market by going public aligns with their growth strategy.
What happens when a company goes private?
With Petcos past transitions from public to private, its important to know what happens to your investment should a company that you own stock in transition to being privately held.
In basic terms, if a majority of a companys shareholders agree upon a price to have their shares purchased at (usually above current market trading levels), then the company will compensate them in an organized share buy-back.
With the offered share price often being substantially higher than market value, its usually within a shareholders best financial interest to take the deal. For Petco investors, they got the long end of the stick twice.
When was the Petco IPO date?
The Petco IPO date was January 14, 2021. Since then, shares have experienced the expected upswing, and are now being traded at over $26 per share as of February 6. After day one, shares had increased in value by 44 percentbut this kind of bull run is typical for newly public companies.
What investors should know
Having a company IPO twice is a rarity. Having a company IPO three times iswell, its even more rare. But if we take a look at the rationale behind Petco going public again, things begin to make more sense.
The IPO craze is somewhat cyclical, just like the markets as a whole. In fact, 2020 saw more IPOs than ever before. Needless to say, were currently experiencing an upswing in the cycle.
At the moment, there are a handful of favorable market conditions that lend themselves to the appeal of companies going to market, things like:
- Lower interest rates across the board
- Investors switching their focus and adding high-yield investments to their portfolios
- More robust interest in retail investing thanks to readily available online brokerages
The last time that the markets experienced an IPO craze like the current one was during the late 1990s stock bubble. Similar favorable market conditions existed then, with investors looking to equity markets in an attempt to retain higher yields from their holdings.
During the pandemic, American families added over three million pets to their households. With the addition of these pets will come demand for additional food, supplies, toys, and other goods and services.
Thats what CEO Ron Coughlin is banking on, at least.
In a virtual IPO roadshow video prepared by the company, Coughlin said that Petco is in a unique position to outclass their competitors over the coming years. With nearly 1,500 brick and mortar locations across the country, Coughlin says that the company plans to use those properties to function as pseudo fulfillment centers to support Petcos online business.
In addition, Petcos ability to function as a one-stop-shop gives them an advantage over other niche retailers or online stores that cant also offer pet owners the ability to have their pets health, grooming, and training needs taken care of in one place.
Bottom line
If the fact that Petco has gone public three times since their founding in the mid-1960s makes you hesitate before investing your hard earned money, youre probably not alone. That being said, there are arguments on both sides of the debate as to whether or not Petco would make for a good investment.
On one hand, its a perfectly reasonable concern to think, What if they decide to go private again? While logic would say that with each switch between being publicly and privately held, the next switch becomes more statistically unlikely to occur. But with three returns to market having occurred already in the companys history, another conversion wouldnt be the most surprising thing in the world.
Even if the company were to, for whatever reason, go private again, it might still present an opportunity to make money in the short-term. Coughlin has a legitimate point in saying that the sharp increase in the number of pets in the country will lead to an increase in demand for pet supplies and services. To capitalize on this increase, Petco will need to steer potential customers away from their competitors, companies like Chewy, Barkbox, and Petsmart.
Each of these competitors does something differentand particularly wellthat sets them apart from one another. With Petcos determination to establish itself as the one-stop-shop for all things pets, it remains to be seen if that strategy will lend itself to becoming an industry leader, or just an afterthought.