Lenders are positively purring at the prospect of PetSmart going private.
Backing a buyout of the pet-supplies retailer, banks have told big private-equity firms they’re willing to finance a deal valued at nearly $8.5 billion — a rich premium to the company’s market value of $7.3 billion, sources said.
Analysts are doubtful whether Pet-Smart would fetch a price at that level, citing dubious growth prospects. Still, sources said a fresh tide of easy money could increase the chances for a deal to get done, as it could allow buyout firms to write a smaller equity check.
“I don’t think financing is an issue,” a source close to the process said.
Banks are willing to lend as much as seven times PetSmart’s Ebitda, or earnings before interest, taxes, depreciation and amortization, sources said.
That’s despite the fact that the Fed, in a bid to cap risks to the financial system, has been pressuring banks to not lend companies more than six times Ebitda to finance a leveraged buyout.
Banks appear to be betting that they can get a deal done on PetSmart, which some industry insiders are touting as the leveraged buyout of the year.
With financing equal to seven times PetSmart’s Ebitda, one or more buyout firms could, in theory, pay as much as nine times Ebitda including the equity they put down, fueling a takeout price at $8.45 billion, or $82.45 a share.
Most analysts, however, currently expect a deal price closer to eight times.
The retailer said in August it would groom itself for a new owner after shareholder activist Jana Partners disclosed a 10 percent stake and pushed for a sale.
Private equity firms Apollo Global Management, BC Partners, the Carlyle Group, Clayton, Dubilier & Rice and KKR made first rounds bids last month and are deciding whether to make binding offers before a Dec. 3 deadline.