After looking at Petco
Petco will be providing more information in an SEC filing today, but as of right now we know the company is being acquired for $29 a share in cash, or approximately $1.8 billion in total, by Texas Pacific Group and Leonard Green & Partners. The offer is a 49% premium to yesterday's closing price and the shares are up 43% on the news. Not a bad one-day move at all, I'd say!
Assuming the deal goes through at $29, which looks likely given the board of directors' blessing, Petco is being sold for approximately 12 times its trailing-12-month operating cash flow, 7.6 times trailing EBITDA, and 0.8 times trailing sales. Applying the same multiples to PetSmart yields a valuation of $3.2 billion to $3.4 billion, and PetSmart is up 6% today on the news and trades at a market cap of $3.49 billion. That's a slight premium, but PetSmart has traditionally performed more consistently and at a slightly higher level of profitability than Petco.
It's hard to argue with such a large, quick premium if you're a Petco shareholder. However, I think these two businesses have a fair amount of growth ahead of them, as they become the Best Buy
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At the time of publication,Nathan Parmelee owned shares in PetSmart, but had no financial interest in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy.