Pets at Home pulls rabbit out of hat with stock market hints

That's why Pets at Home's management was dropping hints about a stock market flotation: it wanted to flush out a private equity owner to take the place of the current one, Bridgepoint. The advertising worked. KKR is ­buying Pets for £955m, a price that includes £230m of borrowings. It's a ­little more than 11 times expected top-line earnings of £85m this year. Would stock market investors have valued the firm so highly? They might have come close. The business model is hardly one to frighten conventional fund managers – out-of-town sheds, opening at a rate of 20 a year, in a market dominated by independent retailers. It's B&Q circa 1992, but with fluffy dog collars. So the choice for Pets' managers, whose 30% stake gives them a loud voice, was what form of ownership would they prefer – public company or private equity? In practice, the decision may have come down to their appetite for financial leverage. KKR will roughly double the debt in Pets to about £450m. That would be far too racy for the public market – the firm's turnover last year was only £404m. KKR clearly feels there are funds available at reasonable rates to make the arithmetic work (and, when even debt-riddled Manchester United can get a bond away at 9%-ish, it may be right). Nor can one criticise Pets chief executive Matt Davies for taking another trip on the private equity wagon: he is only 38, is probably banking a little cash, and can afford to take the higher-risk route. But it's a little depressing that the stock market is still viewed as the buyer of last resort.