Dive Brief:

• Pet Supplies Plus has entered into an agreement to be acquired by Franchise Group for around $700 million in cash, the company announced Monday. Pet Supplies Plus is currently owned by private equity firm Sentinel Capital Partners, which acquired the retailer just over two years ago. 

• The deal is expected to close by March and will result in more than $3.6 billion in annualized revenue — defined as total sales from both entities — for Franchise Group.

• Franchise Group has made a deal for $1.3 billion in new term loan facilities to refinance its existing loan for Buddy's Home Furnishings, American Freight and Liberty Tax and provide acquisition financing for the deal with Pet Supplies Plus.

Dive Insight:

The deal to acquire Pet Supplies Plus came when the pet retailers saw an uptick in sales. Consumers, more than ever, are turning to their pets or looking to adopt one for comfort while they face uncertainty brought on by the pandemic.

Between March 12 and March 18 — right as the pandemic took hold in the U.S. — sales at Pet Supplies Plus shot up 76.4%, according to Earnest Research. Meanwhile, sales rose 42.5% at Chewy, 42.4% at PetValu, 41.8% at Petco and 36% at PetSmart.

More recently, Chewy — which operates primarily online — has seen some of its best results, with its active customer base reaching 17.8 million in the third quarter and its net sales increasing 45% from last year to $1.8 billion. And Petco and BarkBox parent Bark announced in December they each plan to trade publicly on the stock market.

But not everyone has fared so well. PetValu, in November, announced it would begin winding down its U.S. operations, including shuttering all of its 358 stores. Pet Supplies Plus in December, however, vowed to acquire around 40 of those stores and operate them under their name.

For Franchise Group, Pet Supplies Plus may have proved especially attractive given 60% of its 500 locations, the release said, operate under a franchise model.

"PSP adds another franchise concept with strong unit economics, diversification into an economically resilient and secularly growing pet industry, and a brand that has and will continue to experience robust unit expansion from its franchise system," Franchise Group CEO Brian Kahn said in a statement. "The additional scale and diversification that PSP will afford Franchise Group is expected to immediately lead to lower costs of capital and expanded free cash flow generation."

Franchise Group (previously known as Liberty Tax) also acquired Sears Hometown Outlet Stores, The Vitamin Shoppe and rent-to-own retailer Buddy's Home Furnishings, which had 47 of its locations purchased by Bebe Stores late last year. Its practices, however, have been investigated by both the Internal Revenue Service and the Department of Justice.