It’s no secret that many Australians have filled the companion void throughout the pandemic with animal companionship, which has led Woolworth Group (ASX: WOW) to confirm its newest retail vertical by acquiring 55% of Petspiration Group – the owners of PETstock and it’s network of 276 stores across Australia and New Zealand.
Across its network of retail locations, PETstock sells pet food, accessories and provides animal health services, while also boasting a Petspiration loyalty program of 2.4 million members.
Woolworths will acquire the 55% stake for $586 million, while its founders Shane and David Young will continue to operate the business as CEO and Managing Director respectively and retain a minority stake.
“Specialty pet is a large and growing retail segment in which we have limited presence. We are delighted to be investing alongside founders, Shane and David Young, in Petspiration, the number two player in the segment,” said Woolworths Group CEO, Brad Banducci.
“Specialty pet is a logical adjacency given the high penetration of pet ownership across Australia and New Zealand. The partnership will allow us to meet more of our customers’ pet family needs with a complementary range of specialty pet products and services, strengthen the Everyday Rewards loyalty program and unlock opportunities for material value creation across both businesses.”
As part of the transaction, Woolworths will assume net debt of $670 million tied to Petspiration which implies an enterprise value of $1.7 billion.
In the 12 months ended 30 September 2022, Petspiration generated $158m in EBITDA from $979m in sales, for the acquisition to represent an EV/EBITDA multiple of 11.0x.
Commenting on the sale, Petspiration CEO Shane Young commented: “This is a unique opportunity to partner with Woolworths Group to continue to grow and strengthen the business we founded in Ballarat just over 30 years ago.
“We will operate independently of Woolworths Group but will work closely together through our common values to deliver on all the opportunities we have to jointly create value for our pet families and supplier partners.”
Woolworths will fund the acquisition from proceeds realised after recently selling a 5.5% stake in drinks retailer Endeavour Group (ASX: EDV), for which they still retain a 9.1% stake post-sale.
Upon integration of Petspiration, Woolworths anticipates organic growth to be extracted by optimising digital and eCommerce, Supply Chain, Retail Media, Format and Network Development, and Advanced Analytics provided by the retail giant. The internal rate of return has been tipped by Woolworths to be in the mid-teens range.
Integration of PETstock’s 276 locations may be a sign of further opportunities in the market for Woolworths with Petstock Investments also holding a 12.18% stake in vet clinic operator Apiam Animal Health (ASX: AHX) which operates 76 animal health businesses around Australia.
According to a 2021 report released by Animal Medicines Australia, Aussies spent $20.8 billion per annum on their dogs and $10.2 billion on cats with the average expenditure being $3,200 and $2,000 respectively each year on food, veterinary care and health care products.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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