Bridgepoint fetches 8x with Pets at Home sale

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.