Interesting article in the Australian today... Greencross...

Interesting article in the Australian today...

Greencross challenged by online pet food platform

Corporate activity could soon be on the agenda for pet retailer and vet service provider Greencross.

Some are questioning whether new boss Simon Hickey could be preparing to shake things up to prevent further declines in the company’s share price.

While Greencross reported a lift in its earnings and sales for the six months to December, stock prices have come under pressure across the whole sector due to concerns surrounding digital disruption from Amazon.

Greencross shares yesterday were trading at around $5.32, down from about $6.90 a year ago.

One of the greatest threats facing Greencross, which only about two years ago was a takeover target by TPG Capital, is Pet Circle.

Pet Circle is an online pet food marketing platform that is gaining an increasing amount of market share, and pet food is one of the highest grossing products for any retailer in the pet care industry.


One could argue that an obvious strategy for Greencross would be an acquisition of Pet Circle, but the understanding is that the online retailer is not a seller and is eager to grow the business further before staging an exit.

One market analyst said any acquisition of Pet Circle made strategic sense but would be earnings dilutive.

Pet Circle is owned and founded by Mike Frizell and home-delivers pet food and accessories to pet owners, operating as a major industry disrupter.

Greencross was ironically a market darling in early 2016 when TPG Capital made a bid
to buy acquire the business for $770 million.

This was only two years after it merged Petbarn owner Mammoth Pet Holdings, of which it held a major stake, with vet business Greencross.


Today, the market value sits at about $638m.

At that time private equity firms were eager to gain control of companies with exposure to the pet care industry.

The $6.75 per share offer in 2016 implied an enterprise value of 8.7 times earnings before interest, tax, depreciation and amortisation.

Other peers globally trading in developed pet care markets were then trading as high as 13.9 times.

The $6.75 per share proposal implies an enterprise value of 8.7 times earnings before interest, tax, depreciation and amortisation.