Following several months reviewing strategic alternatives, PetSmart (NASDAQ:PETM) has entered an agreement to be acquired at a price of $83/share. The acquisition is lead by a consortium including BC Partners, La Caisse de depot et placement du Quebec and StepStone. Longview Asset Management which owns ~9% of PETM shares has committed to vote in favor of the transaction.
The offer represents a 39% premium over the July 2, 2014 unaffected share price and a 6.8% premium over Friday's closing price of $77.67/share. The transaction is valued at $8.7 billion which is 9.1x adjusted EBITDA for twelve months ending November 2014.
In my previous article PETM was trading at 8.2x trailing EBITDA and I believed any takeover premium would be limited. I am surprised to the upside by the $83/share offer as my previous expectation was that it would be closer to $78-$80/share. I believed it would be a struggle for any private equity firm to generate sufficient returns (exit EBITDA multiple not likely to be any greater than 8-9x) over a reasonable time frame to justify much more than $78-80/share.
The deal is subject to shareholder and regulatory approval, but given management's endorsement and Longview's commitment to vote in favor of the transaction I suspect it will go through at $83/share.
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