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A Low-Flying Pet Supplies Company Just Sold to PetSmart in the Biggest E-Commerce Sale Ever

Read the full article here.

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If you haven’t heard of Chewy, you aren’t alone. But PetSmart, the retail giant with more than 1,500 stores across the U.S., has clearly been tracking the low-flying, five-year-old pet supplies company. According to Recode, it just agreed to purchase its young rival for a stunning $3.35 billion, just slightly more than Walmart paid for last year.

This editor only heard of Chewy for the first time last fall, when talking with one of its earlier investors, Larry Cheng of the Boston-based growth equity fund Volition Capital; Volition had written Chewy its $15 million Series A check in 2013, and the company had been growing quietly like a weed, he’d told me.

By design, that began to change late last year, when Bloomberg wrote a long profile about the Dania, Fla., company and the $236 million it had subsequently raised from investors, including BlackRock and New Horizon, the venture arm of mutual fund T. Rowe Price. Until then, said its chairman, billionaire e-commerce veteran Mark Vadon, his advice to the team had been to keep a low profile to better to avoid competition.

It was something of a feat. By the time Bloomberg published its story, the company had more than 3,000 employees and more than $880 million in annual revenue.

Its apparent key to success: personalization, from writing customers hand-written thank you and holiday cards to dedicating roughly one-sixth of its employees to customer service so pet owners’ questions could be answered quickly. Free shipping on orders over $49 also helped.

Perhaps as a result, the company hadn’t yet reached profitability, Bloomberg noted, but no matter. By the time its report was published, Chewy was reportedly talking with Goldman Sachs about preparing an IPO for this year.

No doubt Walmart and Amazon were following its moves, too. Another big profile that ran in Forbes in January reported that Chewy controls 43 percent of the online sales of pet food and litter in the U.S., just behind Amazon’s 48 percent.

As it turns out, Chewy’s traction proved the most irresistible to PetSmart, for immediate strategic reasons. PetSmart was taken private for $8.7 billion in 2014 by the private equity firm BC Partners, and as part of an overhauled designed to fuel its future growth, the company has been shifting more of its business online. Chewy also has a great reputation with its customers, which is less uniformly the case for PetSmart. Indeed, in a statement today, PetSmart CEO Michael Massey said of the deal, “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.”

The acquisition is expected to close by the end of PetSmart’s second fiscal quarter of 2017.

Chewy cofounder and CEO, Ryan Cohen — who dropped out of college in Montreal to become an entrepreneur — will continue to lead Chewy as an independent subsidiary of the company.


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