Meet the investor who made his fortune with pet food
The standard playbook in private equity is to borrow, buy, and cut costs without mercy. But a massive windfall from investments in Petsmart and Chewy taught BC Partners Raymond Svider that sometimes doubling the risk is a better option.
RAymond Svider, chairman of private equity firm BC Partners, recalls the intense pressure he felt in the days leading up to Christmas in 2017. The biggest investment for his company, the feed retailer of PetSmart company, was collapsing. Its archaic technology needed an overhaul; costs were skyrocketing. Svider divided his time between the BC office on Madison Avenue in Manhattan and the PetSmart headquarters in Phoenix, where he was interim CEO. PetSmart bonds were trading just above 60 cents on the dollar.
He arrived in Phoenix to learn from PetSmart’s CIO that the leveraged retailer had implemented a company-wide hiring freeze to save money, forcing him to rely on expensive contractors.
âI didn’t know there was a hiring freeze,â remembers Svider, who canceled it on the spot, freeing his CIO to make 35 hires. âYou have to be agile and flexible. Sometimes hard rules force people to do the wrong thing because they are just enforcing rules.
At the time, Svider opposed almost all trade and investment agreements. An LBO artist raised in Paris, holder of a master’s degree in electrical engineering from one of the “large schoolsAnd an MBA from the University of Chicago, Svider, now 59, worked double: two days a week to manage the $ 40 billion private equity firm (assets), three days in 1 650 PetSmart stores, for which BC paid $ 8.7 billion in 2014.
Loaded with $ 6 billion in LBO debt and an additional $ 800 million dividend Svider siphoned off, PetSmart was rushing into bankruptcy as pet owners regularly moved online. The standard playbook called for ruthless cost cutting to find the money to pay off lenders. Svider doubled up instead.
He found loopholes in PetSmart’s credit agreements, allowing him to borrow even more money, angering creditors, so he could acquire Chewy, a non-online pet food retailer. profitable. To the outside world, this was the 21st century version of the famous Pets.com dot-com cheat. But Svider knew that billionaire Chewy founder Ryan Cohen was beating all the financial goals he set for himself years earlier when the two first met. While not profitable, Chewy was not burning money because he was growing rapidly. More importantly, it was beating Amazon in its niche. It was the perfect way to polish your troubled bet on PetSmart.
Starting with a $ 1 billion offer, Svider ended up paying $ 3 billion in cash for Chewy, beating rival Petco, in April 2017. Skeptics roared, his bonds dropped and lawsuits broke out. But four years and a pandemic-inspired pet boom turned Svider’s rule-breaking bet into one of the highest private equity scores of all time.
Chewy, now listed on the stock exchange, is worth more than $ 31 billion, and its sales have increased almost tenfold, to reach $ 9 billion expected in 2021. PetSmart itself is deleveraging, after refinancing its buyout debt in January. In total, Svider’s investors are sitting on a windfall of $ 30 billion.
âYou have to be ruthless and very quick to adapt because in any business the world changes every day in ways that you cannot anticipate,â Svider explains in his French accent, speaking from the Hamptons mansion where he now works. at a distance alongside his wife, three children and a pair of cats, Cashmere and Pearl. âConviction is really important. ”
A self-taught investor, Svider got his start after the debt buyout craze of the 1980s. In 1989, he was recruited out of graduate school by legendary negotiators Bruce Wasserstein and Joe Perella. Three years later, he joined the Paris office of Baring Capital Investors, a small buyout arm attached to the London-based Barings Bank.
In 1995, dishonest Barings trader Nick Leeson lost over $ 1 billion, rendering the 300-year-old bank insolvent. Barings was bought by its competitor ING for a few cents on the dollar. It turned out to be a fluke for Svider, who had worked alongside the division co-founder. Baring Capital was split and renamed BC Partners.
In the early 2000s, Svider moved to London to secure telecommunications deals as markets were deregulated, and in 2007, when BC Partners expanded into North America, Svider took the helm.
The company’s first major deal in the United States that year was a $ 16 billion takeover of indebted satellite operator Intelsat, which quickly got into trouble and would file for bankruptcy in 2020. Svider’s successes, however, far outweighed his failures.
Nothing characterizes his victories more than a willingness to take daring bets. GFL Environmental, a waste management group based in Toronto and founded by Canadian entrepreneur Patrick Divogi, stands out. In 2018, BC Partners recapitalized the company to a value of $ 2 billion, building up a 40% stake and seeking to expand it into the United States with acquisitions.
When the coronavirus crisis hit, GFL was working on an IPO; Svider recommended Divogi to move forward despite the turmoil in the market. GFL has priced its IPO at $ 19, below a pre-pandemic range of $ 20 to $ 21, one of five listings in March 2020. Being public, according to Svider, would help GFL capitalize on the next market dislocation. After falling early to $ 13, GFL shares nearly tripled as it acquired assets from
Waste Management of Houston and other competitors. BC Partners’ holdings in GFL are now worth nearly $ 5 billion, nearly three times its initial investment. âRaymond has a unique ability to walk through BS and focus on the big picture,â Divogi said.
Despite private equity’s long-standing habit of turning a profit as quickly as possible, Svider appears to have little interest in selling Chewy, despite the fact that since mid-August the shares have gone from $ 96 to $ 75. $, wiping out about $ 7 billion in gains as pandemic pet spending slowed.
BC Partners owns a 76% stake in the stock which is now worth nearly $ 25 billion.
There may still be another winning move in Svider’s pet sector bet: the IPO of PetSmart, which could reach a valuation of $ 10 billion. Revenue for the once-struggling retailer grew 17% in the second quarter to $ 2.3 billion, and in the first half it generated $ 342 million in free cash flow. PetSmart’s formerly troubled bonds are now trading above par.
Svider insists the pet market, including a new emphasis on healthcare, remains underestimated. Is he looking to consolidate his gains with a quick exit? Not necessarily, he says: âWe don’t feel like we’re in a particular rush.