Franchise Group, Inc. (NASDAQ: FRG) has announced a significant move to broaden its business portfolio by acquiring Pet Supplies Plus (PSP), a leading pet industry retail chain and franchisor. This all-cash transaction, valued at approximately $700 million, marks a major expansion for Franchise Group into the robust and growing pet care market. The acquisition of Pet Supplies Plus, from Sentinel Capital Partners affiliates, is anticipated to be finalized in March 2021 and is projected to significantly increase Franchise Group’s systemwide annualized revenue to over $3.6 billion.
Pet Supplies Plus, established over three decades ago, has become a prominent name in the pet industry. As a rapidly expanding franchisor, PSP boasts a network of over 500 locations across the United States, with nearly 60% operating under franchise agreements. Recognized as the leading franchisor in the pet sector, Pet Supplies Plus is known for its strong store performance and a streamlined franchise system. This system has fueled a substantial pipeline of over 185 new stores currently in development nationwide, highlighting the brand’s strong growth trajectory and appeal to potential franchisees. The business model of Pet Supplies Plus is diverse, generating revenue from corporate stores, franchisee royalties, and internal distribution to its franchise network. Furthermore, Pet Supplies Plus has developed a strong omnichannel presence, providing customers with convenient shopping experiences through neighborhood stores, direct local delivery, and a user-friendly buy-online-pickup-in-store service.
A Pet Supplies Plus storefront, showcasing the brand’s neighborhood-focused retail presence in the pet supply market.
Brian Kahn, President and CEO of Franchise Group, expressed enthusiasm about the acquisition, stating, “We are excited to welcome Pet Supplies Plus, their leadership team, franchisees, and loyal customers to Franchise Group upon the closing of this transaction. Pet Supplies Plus introduces a premier franchise concept to our portfolio, characterized by exceptional unit economics and entry into the resilient and expanding pet industry. Their brand exhibits substantial growth potential through continued franchise expansion. We anticipate that the increased scale and diversification from Pet Supplies Plus will immediately contribute to reduced capital costs and enhanced free cash flow. We look forward to collaborating with the experienced Pet Supplies Plus management team to accelerate their ambitious growth plans and to implement Franchise Group’s operational best practices to further improve efficiency.”
For the fiscal year 2020, Pet Supplies Plus estimated total systemwide revenue of approximately $1.2 billion, with company revenue exceeding $825 million and Adjusted EBITDA close to $80 million. Franchise Group projects that the acquisition, along with its financing arrangements, will lead to an immediate increase in its Non-GAAP EPS in 2021. Updated guidance, incorporating Pet Supplies Plus, will be provided by Franchise Group management upon the completion of the transaction.
Inside a Pet Supplies Plus store, displaying a wide range of pet supplies and products available to customers.
The completion of this acquisition is contingent upon standard closing conditions, including the expiration or termination of the waiting period as required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
In conjunction with the definitive agreement, Franchise Group has secured commitments for $1.3 billion in new term loan credit facilities, arranged by J.P. Morgan, Citizens Bank, and Credit Suisse. These funds are intended to refinance the company’s existing term loan for its Buddy’s Home Furnishings, American Freight, and Liberty Tax businesses, and to finance the Pet Supplies Plus acquisition. This financing also includes commitments of up to $300 million in unsecured financing from an affiliate of B. Riley Financial.
B. Riley Securities acted as the financial advisor, and Willkie Farr & Gallagher LLP served as legal counsel to Franchise Group in this transaction. Pet Supplies Plus received financial advisory services from Piper Sandler, North Point, and Baird, with legal counsel provided by Kramer Levin.
About Franchise Group
Franchise Group is focused on operating and expanding a diverse portfolio of franchised and franchisable businesses. The company actively seeks to grow its brand portfolio, leveraging its operational expertise and capital allocation strategies to generate strong cash flow for its shareholders. Franchise Group’s current business lines include Liberty Tax Service, Buddy’s Home Furnishings, American Freight, and The Vitamin Shoppe. Collectively, Franchise Group operates over 4,100 locations primarily across the U.S. and Canada, encompassing both company-operated and franchised units. With the addition of Pet Supplies Plus, Franchise Group is poised to further solidify its position in the franchise industry and capitalize on the growing pet supplies and services market.
Forward-Looking Statements
This announcement contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements involve predictions, expectations, and beliefs about future events or results that are not historical facts. Terms like “outlook,” “guidance,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” or “could,” and similar expressions identify these forward-looking statements. These statements include projections and expectations regarding Franchise Group’s financial condition, the Pet Supplies Plus acquisition and its financing, anticipated benefits from these transactions, Pet Supplies Plus’s performance, and strategic growth plans. These forward-looking statements are subject to risks and uncertainties, many of which are beyond the company’s control, including the impact of the COVID-19 pandemic, financing success, and overall economic conditions. Actual results may differ materially from projected results due to various factors, including the risk that the acquisition or financing may not be completed, the effects of the announcement on business relationships, management distraction, legal proceedings, transaction costs, franchise growth at Pet Supplies Plus, economic conditions, consumer spending, product and service performance, strategy implementation, inventory management, tax policy changes, and the failure to meet closing conditions. Readers are advised to consult Franchise Group’s filings with the SEC, including the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in their reports, available at www.sec.gov, for a comprehensive understanding of these risks. Forward-looking statements are effective only as of the date made, and Franchise Group undertakes no obligation to update or revise them.
Franchise Group Investor Relations Contact:
Andrew F. Kaminsky
EVP & Chief Administrative Officer
Franchise Group, Inc.
[email protected]
(914) 939-5161
