PetSmart to buy e-commerce company Chewy for $3.35 billion - Axios Pro Rata

The BFD: PetSmart buying Chewy

PetSmart, a pet supplies retailer owned by BC Partners, has agreed to acquire pet-focused e-commerce company Chewy for around $3.35 billion (as first reported by Recode). We're leading with this one today, because there's a lot to break down:

1. League tables: This is the largest sale ever of a VC-backed e-commerce company, topping Walmart's $3 billion purchase of Jet.com.
2. Money matters: The deal is being financed by new equity from PetSmart's sponsors, which includes both BC and groups like GIC, Longview Asset Management, Caisse de dép?t et placement du Québec and StepStone Group. Plus a new debt offering from existing PetSmart lenders Barclays and Citi.
3. Breakdown: No announcement on the financial breakdown, but I hear that the deal includes around $2 billion in cash, while the remainder is stock and/or retention packages.
4. Bank tellers: One reason it's so silly for PetSmart to be playing coy on the financing details is that most of it will come out when the banks go out to syndicate the new debt. Until then, what we know is that PetSmart de-levered a bit from its original 2014 buyout, from 6.4x EBITDA down to 5.6X after a dividend recap in early 2016.
5. Sales pitch: If we all read the Miami Herald more often, we might have sensed that something was up.
6. PetSmart's strategy: The legacy retailer and Petco are dominant in the pet supplies market, but are dwarfed by Chewy when it comes to e-commerce. And since e-commerce is where pet food sales are heading ― no matter the bricks-and-mortar perks of on-site vet and grooming services ― this is a logical play. Even at PetSmart, physical retail is having some issues. LevFin Insights reports that the company had a 4.6% drop in same-store sales in Q4, although EBITDA grew by 2%.
7. Speaking of Petco: For years there has been talk that PetSmart and Petco may merge, but that there were anti-trust concerns. This deal makes that tie-up even less likely.
8. Chewy's strategy: This will help with distribution. And it's a massive check for a pair of Floridian founders, plus early investors like Boston's Volition Capital. But all signs were that this company could go public (perhaps after one more big, pre-IPO round), and now it's tied its horses to a physical retailer owned by a private equity firm known for its cost-cutting capabilities. Culture, meet shock. Understandable decision, but a highly unusual one.

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Top of the Morning

? VC rankings: Forbes yesterday released its annual Midas List, which is its ranking of the world's top venture capitalists. Per usual, four big quibbles on the methodology: (1) It only includes successful exits of $200 million or more, not smaller exits or losses. I understand the power principle, but bum deals can have a legitimate rankings impact; (2) It includes carrying values for un-exited companies that have raised VC at $400 million or more; (3) The cost basis information is incomplete.

So this is a reminder that we're trying to build a better mousetrap. Quantitative. Only focused on exits. Rankings segmented by initial check sizes. More info is available at https://sunes.is

I have absolutely no access to the underlying data, and we've taken a lot of your feedback from the initial rollout. For example, once you enter your data you can immediately see your returns and your percentile ranking on both a deal-by-deal and total capital basis. Deadline for submissions is June 1. Please help us get this right.

? Left hand, meet right hand: President Trump yesterday said: "We're in very good shape on tax reform. We have the concept of the plan. We're going to be announcing it very soon." This comes just one day after Steve Mnuchin told the FT that introducing the plan by August's congressional recess (i.e., four months from now) is "highly aggressive to not realistic at this point."

? Speaking of taxes: Jonathan Swan has more on Gary Cohn, who "is warming to the idea of eliminating the local and state tax deduction to pay for tax cuts and simplify the code."

? What 'no comment' is for: Home design startup Houzz is looking to raise up to $500 million in Series E funding at around a $5 billion valuation, per Fortune. A company spokesperson told Fortune that "it's not true." A source close to the situation tells Axios to trust Fortune over the spokesperson.

Venture Capital Deals

? VICIS, a Seattle-based maker of football helmets, has raised just under $30 million in new convertible note funding from backers like Peregrine Group, Steven Singh (Concur Technologies CEO) and ex-NFL quarterback Roger Staubach. https://bit.ly/2peVfYk

? Dome9 Security, a Mountain View, Calif.-based provider of cloud infrastructure security, has raised $16.5 million in Series C funding led by Softbank. www.dome9.com

? Clear, a biometric identity platform used in airports and stadiums, has raised $15 million in new VC funding led by existing backer T. Rowe Price. Other shareholders include Delta Airlines, Sterling VC and Legg Mason's Bill Miller. https://tcrn.ch/2pyxVC1

? Avegant, maker of a mixed reality headset, has raised $13.7 million in new VC funding from backers like Intel, Applied Materials and Hangzhou Lian Luo. https://on.ft.com/2oTB5Ct

? Mux, a San Francisco-based video analytics startup, has raised $9 million in new VC funding. Accel led the round, and was joined by return backers Advancit Capital and Susa Ventures. https://bit.ly/2oRnjjH

? Factom, an Austin, Texas-based blockchain-as-a-service startup, has raised $8 million in Series A funding from backers like Draper Associates, Stewart Title, Overstock, Fenbushi Capital, and Plug & Play. Now, Peeli Ventures and Harvest Equity. https://bit.ly/2oqDfWk

? AppDetex, a Boise, Iowa-based provider of online and mobile brand protection, has raised $5.5 million in new VC funding. Epic Ventures led the round, and was joined by Origin Ventures. www.appdetex.com

? Shine, a Brooklyn-based provider of personalized wellbeing content via text message, has raised $2.5 million in VC funding from Betaworks and Eniac Ventures. https://bit.ly/2nYS9rr

? MortgageHippo, a Chicago-based provider of white-label digital mortgage solutions to lenders, has raised $2.25 million in seed funding led by CMFG Ventures. https://trib.in/2pxoeDQ

? DadeSystems, a Miami-based provider of account receivable automation solutions, has raised $2 million in VC funding from Ocean Azul Partners. www.dadesystems.com

? Credihealth, an India-based online medical assistance startup, has raised $1.5 million in VC funding from Tolaram Group and Mountain Pine Capital. https://bit.ly/2pQ94ZL

? TurboTenant, a Fort Collins, Colo.-based provider of rental property management software for independent landlords, has raised $1.5 million in growth equity funding led by FrontRange Capital Partners. https://on9news.tv/2pyRTzn

Private Equity Deals

? Ciox Health, an Alpharetta, Ga.-based portfolio company of New Mountain Capital, has acquired ArroHealth, a Hauppauge, N.Y.-based provider of chart retrieval and risk adjustment services for health plans and provider groups. No financial terms were disclosed. www.arrohealth.com

? ConvergeOne, an Eagan, Minn.-based portfolio company of Clearlake Capital Partners, has agreed to acquire Rockefeller Group Technology Solutions, a New York-based provider of telecom and data services to corporate customers. No financial terms were disclosed for either deal. ConvergeOne is a portfolio company of Clearlake Capital Partners. https://bit.ly/2peSfv5

? Downhole Chemical Solutions, a Frisco, Texas-based provider of stimulation and completion chemical products and services to the oil and gas industry, has raised an undisclosed amount of private equity funding from Black Bay Energy Capital. www.stimchems.com

? FloCap Injection Services, a Midland, Texas-based provider of specialty chemicals and capillary tubing services to oil and gas production companies, has secured an undisclosed amount of private equity funding from Hastings Equity Partners. www.hastingsequity.com

? KKR and Stone Point Capital have acquired a majority stake in Focus Financial Partners, a -based partnership of fiduciary wealth management firms, from a consortium that includes Centerbridge Partners, Summit Partners and Polaris Partners. The deal values FFP at around $2 billion. https://on.wsj.com/2oL8Ofl

? KKR and Macquarie Group have increased their takeover offer for Australian lottery operator Tatts Group (ASX: TTS) to A$6.15 billion, or A$4.21 per share. This is now basically identical to an existing offer from Tabcorp (ASX: TAH), except that it is in all-cash, while Tabcorp is offering a mix of cash and stock. https://reut.rs/2pAyez6

? Partners Group has agreed to acquire Key Retirement Group, a British provider of advice and financial products for individuals approaching or in retirement, from Phoenix Equity Partners at an enterprise value north of ￡200 million. https://bit.ly/2pyK3ps

? Platinum Equity has agreed to acquire the OfficeMax business in Australia and New Zealand from Office Depot (Nasdaq: ODP). No financial terms were disclosed.

? Platform Partners has acquired Beneplace, an Austin, Texas-based marketer and distributor of voluntary employee benefits and employee discount programs. No financial terms were disclosed. www.beneplace.com

? SCA of Sweden reportedly has rejected a $22 billion takeover offer for its hygiene products arm from undisclosed private equity firms. https://reut.rs/2oNioyb

? Warburg Pincus has acquired a majority stake in CityMD, an urgent care provider in the New York Metro and Seattle areas, for an undisclosed amount. https://reut.rs/2pf5prV

? Webster Capital has agreed to sell MooreCo International Holdings, a Temple, Texas-based provider of visual communications products and office furniture to the educational and commercial markets, to Prudential Capital Partners and company CEO Greg Moore. https://bit.ly/2oqUpTx

Public Offerings

? Bright Scholar Education, an operator of international and bilingual schools in China, has filed for a $200 million IPO. It plans to trade on the NYSE, with Morgan Stanley and Deutsche Bank serving as lead underwriters. The company reports under $1 million in net income on $151.5 million in 2016 revenue. https://bit.ly/2pfRwtD

Liquidity Events

? Solis Capital Partners has sold M.L. Kishigo Manufacturing, a Santa Ana, Calif.-based maker of high-visibility safety garments, to Bunzl (LSE: BNZL) for an undisclosed amount. https://bit.ly/2pwZkXJ

More M&A

? Ant Financial, the payments affiliate of Alibaba Group (NYSE: BABA), has acquired Singapore-based payment service HelloPay, which itself was indirectly owned by Alibaba (HelloPay is a subsidiary of Lazada, in which Alibaba acquired a majority stake last year). The business will be rebranded as Alipay. https://reut.rs/2orgWjg

? Chevron (NYSE: CVX) has sold its Canadian gas stations and British Columbia refinery to Parkland Fuel (TSX: PKI) for C$1.46 billion. https://reut.rs/2omvkda

? Islamic Development Bank of Saudi Arabia plans to acquire at least a 10% stake in Turkey's state-run stock exchange, according to Reuters. https://reut.rs/2omqIDT

? Zhuan Zhuan, a Chinese online marketplace for used goods, is spinning out of 58.com (NYSE: WUBA) via a $200 million investment from Tencent. 58.com will retain an equity stake. https://bit.ly/2pALHXy

Fundraising

? Clayton, Dubilier & Rice has closed its tenth buyout fund with $10 billion in capital commitments. www.cdr-inc.com

? Portfolio Advisors has closed its second direct credit opportunities fund with $740 million in capital commitments (30% of which is already committed). www.portad.com

It's Personnel

? Ophelia Brown as stepped down as a general partner with London-based venture firm LocalGlobe, according to TechCrunch. No word yet on her future plans. https://tcrn.ch/2oS0H2v

? Aron Grossman has joined mid-market private equity firm Gemspring Capital as a principal and head of software investing. He previously was with Rho Capital. www.gemspring.com

? Michael Siano has joined Houlihan Lokey as a director in the firm's healthcare group. He previously was a healthcare banker at Deutsche Bank. www.hl.com

Final Numbers

Source: Thomson Reuters

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