The Year of the IPO continues! We wrote about the parallels between Pinterest and early Facebook, we did an extensive Slack S-1 read-through, and we highlighted what Uber and Lyft are saying about autonomous vehicles in their filings.
With a high-profile IPO like Chewy coming up, an analyst faces two challenges: since the company is a unique, fast-growing asset, the analyst has to triangulate possible valuation ranges for the offering as there are no direct comparable. Contrast this, for example, to a quick-serve restaurant chain seeking an IPO: there are tens of comparables to choose from. The second challenge is that the pre-IPO valuation work has to be done quickly so that the team can decide whether to pursue the idea further: the opportunity costs on time spent in dead ends in investment management can be extraordinarily large. Using Sentieo, we were able to pull trading data on active and delisted tickers, as well as transaction multiples from fairness opinions, in minutes, ready to be compared against the proposed IPO price range, and to be presented to the team.
After Chewy’s first IPO filing in late April (latest S-1/A here), we are looking at what we can learn about pet industry valuations — both from trading data and from what is buried deep in SEC filings — in the form of fairness opinions filed around M&A activity in the sector.
Chewy (CHWY) does not have direct US comparables. There are no other dominant online pet food or pet medicine specialists. There used to be two publicly traded “pure play” pet food companies: Blue Buffalo (old ticker: BUFF) and FreshPet (FRPT). FRPT still trades, while BUFF was taken over by General Mills.
FRPT pioneered fresh, refrigerated pet food that is delivered to stores and sold in branded coolers, in contrast to Chewy’s online model of shelf-stable food combined with a large subscription business. After a rocky post-IPO start, FRPT is in the middle of a successful turnaround, and the company is currently trading at around 6.5x EV/NTM Sales and at around 48x EV/NTM EBITDA. Interactive chart
BUFF, on the other hand, offers traditional, shelf-stable food. BUFF was acquired by General Mills last year, and was trading at 5.7x EV/NTM Sales and 23.1x EV/NTM EBITDA at takeover time. Interactive chart
Since the General Mills-Blue Buffalo transaction was likely cited in fairness opinions, we searched all Consumer Staples company filings for tables that contain “Blue Buffalo.” We found one right away, literally the first result: Pinnacle Foods’ filings around its takeout by ConAgra Brands (CAG) (Full document here). We see that there are three recent pet food transactions that are of relevance to our work on CHWY: BUFF taken out at 25.5x EV/LTM EBITDA, Ainsworth Pet Nutrition at 20.0x, and Big Heart Pet Brands at 15.1x.
Going beyond food, we also took a look at the pet health players. There are three segments that we looked at: pet/animal pharmaceuticals, pet hospitals, and pet health insurance. There are US publicly traded companies in the pharmaceutical and the insurance space.
On the pharma side, we took a look at Idexx Laboratories (IDXX), Zoetis (ZTS), Elanco Animal Health (ELAN), and Phibro Animal Health (PAHC). We can see that the median animal pharma name is trading at 20.4x NTM EV/EBITDA.
There is one US/Canadian pet health insurer trading publicly: Trupanion (TRUP). While pet insurance belongs in the property insurance category, TRUP has been trading more in line with software names, and less so with P&C insurers, which has resulted in a lot of short-seller activity, including published reports and an increased short position as a percent of float. Interactive chart
On the veterinary side, we searched through corporate filings for tables containing VCA (old ticker “WOOF”), a marquee $10 bn transaction. We found a detailed fairness opinion in the filings of Abaxis (ABAX), acquired by Zoetis (ZTS, mentioned above). We see that precedent transactions in the veterinary distribution and the veterinary hospital sectors have been done at 14.5x-15.0x LTM EBITDA multiples. See full filing.
Finally, we also know that Chewy is currently owned by physical pet retailer PetSmart (old ticker “PETM”). PetSmart itself was public, and was taken private in early 2015. We see that the comparables on file from that time look at physical retailer comparables to arrive at a median 9.7x LTM EBITDA. Full filing here.
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