SBOs replace IPO hopes as KKR snaps up Bridgepoint's Pets at Home

Rikke Eckhoff
27 January 2010

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IPO maths don't add up as KKR completes ТЃ 950m Pets at Home secondary. Rikke Eckhoff reports.

KKR's acquisition of Bridgepoint's formerly IPO-bound Pets at Home could be indicative of a new trend: as the IPO market remains uncertain, secondary buyouts might make their comeback. Indeed the deal, reportedly valued at £955m, saw many private equity firms put in bids for the business in a highly competitive auction process, including TPG, Apax Partners and Bain Capital.

The high levels of interest (and high valuations being offered), saw the vendor, Bridgepoint, sideline plans for the company's IPO, announced late last year. The investor had been pursuing a dual track process for the sale, as early examples suggested that the public market rally might not translate into lucrative exits amind continuing underlying volatility.

One such example is fund management business Gartmore, backed by Hellman and Friedman, which dropped its share price to 220 pence on its admission to the London Stock Exchange in December last year, down significantly from its target price range of between 250-330 pence per share.

Speculations are now rife that other planned listings of strong performing private equity portfolio companies may end up being pulled. Blackstone and DIC's Merlin Entertainment is due to float this year, as is Virgin Active, backed by Permira and Bridgepoint, and Apax's fashion retailer New Look.

The move by KKR could be indicative of a return of secondary buyouts, darling of the boom-years but forgotten during the crash, to fill the void as private equity firms remain under pressure to invest capital. Further, narrowing buyer and seller price expectations and a (partial) re-opening of the debt markets are faciliting a renewed surge in SBOs.

The recently published unquote" Q4 Private Equity Barometer, produced in association with Candover, reveals that the number of secondary buyouts more than doubled in the final three months of 2009 from nine deals to 21. Perhaps more significantly, both of the two large-cap buyouts of the quarter were secondary deals: EQT's €2.3bn acquisition of Candover and Cinven's publisher Springer Science and Business Media, and Apax's €1.1bn buyout of ICG-backed clinical trial logistics business Marken.

This latest addition to the group of large SBO's proves how lucrative they can be. KKR's acquisition of Pets at Home will reap an expected 8x return for Bridgepoint on its original investment. Bridgepoint acquired the company in 2004 from 3i and ICG in a deal valued at £230m.

Pets at Home has endured the recession well. The company is expected to generate about £82m of EBITDA in the year to March. The retailer has expanded from 147 stores in 2005 to about 250 stores today, and has also doubled its sales to £404m last year and trebled its EBITDA to £70m.