2 Wall Street firms have made billions betting on a hot consumer trend
A couple of private equity investors are set to cash in on a big bet on increased spending on pets.
Private equity firms TPG Capital and Leonard Green bought out retailer Petco in 2006 in a deal valued at more than $1.7 billion.
They announced on Monday they're selling it to another couple of private investors.
CVC Capital Partners and the Canada Public Pension Investment Board are acquiring it for a whopping $4.6 billion.
When they bought Petco nearly 10 years ago, TGP Capital and Leonard Green invested less than $800 million into the deal in cash and used debt to finance the remainder of the purchase.
Dividend recap
In 2010, they carried out a dividend recapitalization - where a company takes on more debt and returns that money to shareholders - and paid themselves roughly $600 million.
That was followed by another dividend recap, in 2012, for roughly $550 million.
Kiel Porter and David Carey at Bloomberg reported that TPG and Leonard Green were in line to make a 350% profit on the sale. Kevin Allison at Breakingviews estimates that the two PE firms will make 4.5x times their original $765 million investment.
That would mean the private equity owners of Petco made around $3.4 billion on the sale, with a profit of around $2.7 billion.
Business Insider reached out to TPG Capital and Leonard Green for comment. TPG declined to comment, while Leonard Green did not return messages in time for publication.
It is clear that Petco was a multi-billion dollar winner for its private equity owners.
And, this chart, based on estimates from the American Pet Products Association, proves why: Americans are spending nearly 60% more than what they were in 2006.
