BUSINESS - PetSmart to Acquire Chewy Inc.

PetSmart, Inc. announced it has entered into a definitive agreement to acquire the online pet retailer Chewy, Inc.

The acquisition accelerates the execution of PetSmart’s strategy and is a critical milestone in its journey to be the most convenient, best-in-class pet retailer.

Chewy is one of the leading online retailers of pet products and has seen major growth since it was founded by Ryan Cohen and Michael Day in 2011.

With the recent upgrade to the PetSmart website that boosts e-commerce, it’s clear the acquisition is part of a plan to grow the online portion of their business.

The combination of PetSmart and Chewy will enhance both companies’ capabilities and reach, offering a wide selection of pet products and services available both in-store and online in North America.

Michael Massey, president and chief executive officer of PetSmart said in a release, “We are focused on improving our customers’ experience in-store and online as we continue to execute against our long-term strategic initiatives. 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.”

Upon closing, Chewy will continue to be led by CEO Ryan Cohen and operate largely as an independent subsidiary of PetSmart, focusing on its current business strategy, while PetSmart will continue to execute its strategic initiatives across the combined company.

“Since we started Chewy, we have been dedicated to understanding and satisfying the evolving needs of our customers to deliver the highest quality pet products and customer service,” said Cohen.

“Combining our strong e-commerce expertise with PetSmart’s best-in-class infrastructure, footprint and breadth of offerings including services will help us ‘wow’ our customers even more.”

The acquisition, which is subject to customary regulatory approvals, is expected to close by the end of PetSmart’s second fiscal quarter of 2017.

PetSmart’s recent acquisition of Allpaws was more about social innovation than retail services, demonstrating the importance of both aspects to the pet supply retailer.

BUSINESS - PetSmart Acquisition Sheds New Light on Corporate Valuation

AllPaws.com purchased by PetSmart

Richard Kestenbaum, Partner at Triangle Capital, recently wrote about the value of emerging subscriber based companies in Forbes magazine.

His startling conclusion is that many companies that once held great value are no longer given the same regard, while some of those formerly considered worthless are now regarded as having great value.

He draws this conclusion from Triangle’s participation as sell-side advisor on the AllPaws.com acquisition by PetSmart which is a recent real world event.

Furthermore, he admits that he and his colleagues were surprised by how things worked out as the transaction progressed.

PetSmart makes no money when a pet is adopted and yet the company looks upon the AllPaws transaction as core to their business:

“Pet adoption is core to our purpose-driven business, and the acquisition of AllPaws offers a smart technology platform to accelerate our in-store adoption program even further,” said Michael Massey, president and chief executive officer for PetSmart.

“Our leadership role in pet adoption has led to a record-setting seven million pets adopted from our stores since we started the in-store adoption program in 1994. More than 3,000 current animal welfare partners -- plus thousands of additional rescues and shelters -- will be able to use AllPaws as a digital hub to promote adoptable pets, which we believe will result in even greater success in finding forever homes for pets across North America.”

As Kestenbaum notes:

“Convincing consumers that a business has a purpose beyond making money and is consistent with consumers’ values is key to developing a sustainable and trusting relationship with consumers and maintaining sales and profits.Never before have values been so closely associated with earnings and success. This is new. 

"About half the population has a dog and 35% has a cat. But among Americans in their 30s, 75% have dogs and 51% have cats. Even though the pet industry is exploding, having grown threefold in the last ten years, PetSmart knows that they can’t rely on a growing industry, they have to share their customers’ values to continue succeeding.”

What does this mean for emerging companies like Urban Animal Corporation? Just three things:

1. Investing capital to develop online services that can accumulate large pools of subscribers at a low cost of acquisition IS THE THING OF VALUE.
2. Subscribers and successful services will be valued higher than revenue, income or free cash flow.
3. In the next three to four years the scramble to acquire subscribers and services that add to the core values (purpose) of large brands will intensify.

The Paradigm Corporation has followed this trend in valuation since it emerged in late 2012. The ‘Paradigm Market Watch’ document is constantly updated to maintain a watching brief on comparable transactions and resources as well as market trends and analysis.

We believe the opportunity for clients like Urban Animal Corporation is to apply capital to add services and subscribers at a lower acquisition cost than these elements are valued by the market.

Large brands will then seek out meaningful relationships that add the substance and trust of Urban Animal Corporation to the brand’s purpose and core value.

About Executive Producer, Larry R. Evans:
Larry Evans is a futurist, a brand developer and a collaboration advocate. He is Principal of The Paradigm Corporation, which is headquartered at Thunder Ridge just outside Crossfield, Alberta, Canada. He is known for bringing a unique and predictive lens to paradigm shifts in a career that spans 45 years. Now from his wheelchair, he brings a grounded, tenacious view of brand value, client rights, online services and trusted relationships in the digital age. His perspective and values influence his life, business and ministry.