PetSmart fetches Chewy for $3.35B in largest ever e-commerce acquisition

Dive Brief:

PetSmart on Tuesday announced it will acquire online pet retailer Chewy, Inc. Though the company’s press release didn’t include the terms, Recode reported the price tag stood at $3.35 billion — making it the biggest e-commerce acquisition ever (topping even Wal-Mart’s giant $3.3 billion outlay for Jet last year).
PetSmart runs more than 1,500 stores in North America, and Chewy will allow it to expand online, the company said. Chewy will continue to be led by CEO Ryan Cohen and operate largely as an independent subsidiary of PetSmart, the companies said.
The acquisition, which is subject to customary regulatory approvals, is expected to close by the end of PetSmart’s second fiscal quarter of 2017, according to a press release.

Dive Insight:

PetSmart has been growing since it was taken private by a consortium of private equity buyers in 2014 — expanding its store footprint, moving into more pet health care services and revamping its website. But while its growth ambitions are plain, the acquisition of Chewy, which quickly became popular in the pet supplies space since its founding in 2011, greatly expands the brick-and-mortar company’s reach.

“We are focused on improving our customers’ experience in-store and online as we continue to execute against our long-term strategic initiatives,” PetSmart CEO Michael Massey said in a statement. “Chewy’s high-touch customer e-commerce service model and culture centered around a love of pets is the ideal complement to PetSmart’s store footprint and diverse offerings. Together, PetSmart and Chewy will provide the most convenient customer experience to a wider base of pet parents across every channel.”

Pet supply retail has grown in recent years, and grocery stores and general merchandise retailers like Wal-Mart and Target have expanded their offerings. Rising pet ownership in the U.S. has helped retailers in the space weather the Great Recession fairly well.

That’s leading to more spending, research shows. Households that view their dogs as family members spent $438 on average at the vet, compared to $266 in households that view their dog as a “pet or companion,” and $190 on those who view their dog as property, according to the American Veterinary Medical Association. More Americans are pet owners these days, too, increasing from 53.6% to 56.5% between 2009 and 2013, with pet ownership in nearly 67 million households.

PetSmart’s acquisition of Chewy makes sense in this environment, Moody’s Investors Service Vice President Mickey Chadha told Retail Dive in an email on Wednesday. But, considering the hefty price and the fact that Chewy is not likely profitable, it won’t do much for the bottom line for a while.

“PetSmart’s acquisition of Chewy follows in the footsteps of Wal-Mart’s Jet.com acquisition and makes strategic sense as it adds online expertise and scale and complements PetSmart’s brick-and-mortar business while immediately increasing PetSmart’s online penetration with an online platform that has already been built,” Chadha wrote in the email. “However, we anticipate that it will come at a hefty price tag, and like most high growth online retailers, we estimate Chewy is probably not profitable and generates little or no EBITDA at this time. We therefore expect the acquisition to increase PetSmart’s financial leverage."