Bridgepoint fetches 8x with Pets at Home sale

KKR’s £955m bid beat out TPG, Apax and Bain in the chase for Pets at Home, the UK retailer whose jobs and revenue growth have soared under Bridgepoint’s ownership.

Kohlberg Kravis Roberts’ first private equity deal of 2010 – the £955 million (€1.1 billion; $1.5 billion) purchase of Pets at Home – will bolster its retail portfolio, at the same time boosting returns for Bridgepoint, which will book an 8x total return multiple post-sale.

Bridgepoint declined to comment, while KKR could not immediately be reached for comment.

The price tag is understood to include around £233 million of debt held by Pets at Home, though the transaction’s overall debt-to-equity ratio and specific financing details are unclear. Nomura, Calyon, KKR Capital Markets and Commerzbank are arranging debt, according to a statement.

Pets: Throwing a bone to private equity 

A source close to the process said the KKR bid represents an 11.3 EBITDA multiple based on Pets at Home’s 2010 EBIDTA projection of £84 million. If calculated based on Pets at Home’s most recent annual EBIDTA figure, totalling about £70 million, the sale was agreed at a 13.6 EBIDTA multiple. “That’s a high multiple for retail by any measure,” said the source.

Signed around 1:30am Wednesday morning, the agreement with KKR ended an auction process that began in November with nine first-round bidders. Those whose offers were above the £800 million mark – TPG, Bain Capital, Apax Partners and KKR – advanced to the second round, bids for which were submitted Monday.

KKR’s offer was described as “compelling” and “deliverable” by a source close to the auction process, which had been run in parallel with plans to pursue a public listing for Pets at Home.

Bridgepoint shelved a similar dual-track process in late 2007 due to adverse market conditions.

It purchased Pets at Home from 3i and Intermediate Capital Group in 2004, with Bridgepiont’s Fund III writing a £50 million equity cheque as part of a £230 million deal. Positive company performance spurred the sponsor to subsequently undertake three refinancings, returning more than their original investment. UK newspaper The Telegraph previously estimated the refinancings returned roughly £120 million to investors.

Since Bridgepoint’s purchase of Pets at Home, the retailer has seen annual revenues more than double to £404 million as of 31 March, EBIDTA has more than tripled to £70 million, 100 new stores have been opened and 2,000 jobs created.

KKR is “enthusiastic” that such rapid growth will continue under KKR’s ownership, KKR member John Pfeffer said in a statement.  Its retail portfolio includes US discount retailer Dollar General, toy store chain Toys ‘R Us and UK drug store chain Alliance Boots.