PetSmart is in talks to go public through a blank-check company backed by private equity firm KKR & Co., according to people familiar with the matter.

The pet supply retailer, backed by BC Partners, would be valued in the transaction at US$14 billion including debt, said one of the people, who asked not to be identified because the information was private.

DEBT ADDED

KKR Acquisition Holdings I Corp., the special purpose acquisition company, raised US$1.38 billion in its initial public offering last March to hunt for a deal in the consumer or retail industries. As with other SPAC transactions, PetSmart would become publicly traded after combining with KKR Acquisition.

A deal with the SPAC would follow years of wrangling with creditors over PetSmart debt. Private equity firms led by BC Partners bought the chain in 2015 in an US$8.7 billion deal, and later added debt to PetSmart when it acquired online pet store Chewy Inc. in 2017, even though the operations of the two retailers were never fully integrated.

Shares in KKR Acquisition rose 0.3 per cent to US$9.78 at 10:08 a.m. Friday in New York.

The blank-check company’s chief executive officer is Glenn Murphy, the former Gap Inc. CEO who is now chairman of Lululemon Athletica Inc. Paul Raether, with KKR since 1980, and Paula Campbell Roberts, managing director of global macro and real estate Americas at the private equity firm, are also on its board, according to its website. 

CONSUMER TRANSACTIONS

The merger would add to the US$1.8 trillion of transactions announced in the consumer industry over the past 12 months, according to data compiled by Bloomberg. Discussions are in early stages, and the talks could still end without an agreement, the people said.

A spokesperson for BC Partners didn’t respond to requests for comment. Representatives for Phoenix-based PetSmart and KKR declined to comment.

Despite a rocky period that saw the buyout debt for PetSmart and Chewy fall to distressed levels, the companies’ fortunes rebounded amid growing spending on pets and pet care.

CREDITOR FIGHT

BC Partners and PetSmart became mired in a dispute with creditors in 2018 after the private equity firm moved a portion of shares in the Chewy.com unit out of lenders’ reach. BC Partners split Chewy from PetSmart and took the online retailer public in 2019.

Then in October 2020, BC Partners tried to fully carve out PetSmart’s remaining stake in Chewy in a recapitalization deal. Investors would have no longer had Chewy backing the debt and balked at the sponsor-friendly terms of the new deal, causing PetSmart to pull it from the market.

PetSmart came back to the market in January 2021, but with a key investor concession: a stake in Chewy valued at around US$4 billion as a guarantee for the debt sale, which would fall away if the company hit certain leverage targets. The company then successfully sold a US$2.3 billion leveraged loan, US$1.2 billion secured bond, and US$1.15 billion unsecured bond to finish the deal.