LONDON Pets at Home is planning a London stock market debut that values Britain's biggest pet shop group at about 1.5 billion pounds ($2.5 billion), seeking to cash in on an improving outlook for consumer spending and the nation's love of pets.
The firm, mainly owned by U.S. private equity group KKR (KKR.N), said on Wednesday it was looking to raise about 275 million pounds from the sale of new shares, which will include an offer to retail investors, to pay down debt.
It also unveiled plans to more than double the number of its veterinary surgeries and in-store grooming salons in a bid to increase its approximate 12 percent share of Britain's 5.4 billion pounds-a-year pet care and retail market.
That market grew at a compound annual rate of 2.6 percent between 2008 and 2012, faster than the broader UK retail market and underscoring Britons attachment to their pets even during difficult economic times.
The flotation plan is one of a string expected in Britain's retail sector this year as the economy recovers from a long and deep recession. Newsagent and convenience store McColl's, online domestic appliances retailer AO and discount firm Poundland have all said they plan to list soon.
Fat Face, House of Fraser, Boohoo.com and B&M are also expected to come to market later this year.
"Pets at Home will be seen as an important test of investor appetite for private equity owned retailers, as it has been through a couple of owners in recent years, so the question is how much has been left in the tank by KKR?," said independent retail analyst Nick Bubb.
Founded in 1991, Pets at Home trades from 369 stores across the UK, 246 small animal veterinary surgeries and 116 in-store grooming salons. It employs about 6,000 staff, 93 percent of them pet owners.
"This market remains highly fragmented which offers us significant scope for further gains in share," Chief Executive Nick Wood told reporters, noting Pets at Home's five largest competitors have a combined total of just 225 stores.
He outlined plans for the firm to grow to over 500 UK stores, more than 700 veterinary practices and in excess of 300 groom rooms in the medium term.
Wood, previously CEO of American Golf, joined Pets at Home in June 2012. He and his management team are pictured with their own pets on the group's website - Wood has two Bichon Frise dogs, Oscar and Louis, along with the family hamster Snuggles.
Pets at Home said KKR, which bought it from Bridgepoint four years ago for 995 million pounds, other shareholders and members of the management team may also realize part of their investment in the firm via the repayment of shareholder loans and a sale of shares.
Pets at Home would seek a valuation of about 1.5 billion pounds, a person familiar with the matter told Reuters.
The firm said at least 25 percent of its issued share capital would be freely tradable post flotation.
The market will have an obvious benchmark in the valuation of the leading U.S. pet care retailer PetsMart, which has a market value of $6.7 billion.
Pets at Home said the 275 million pounds proceeds from the share offer together with proceeds of 325 million pounds from a new senior facilities agreement would repay all amounts outstanding under an existing banking deal.
It expects to have net debt at admission to the stock market of 275 million pounds - 2.5 times its forecast for underlying earnings before interest, tax, depreciation and amortization (EBITDA) of 110.2 million pounds for the year to March 27.
Pets at Home's total revenue grew 11.7 percent in the 40 weeks to January 2, while like for like revenue grew 2.4 percent.
Post flotation it plans to pay an annual dividend of 30-40 percent of fully taxed earnings.
(Reporting by Mark Potter)