Chewy, founded in 2011, was a quickly growing online seller of pet food. Its roughly $3 billion sale to PetSmart was one of the biggest ever e-commerce deals. It demonstrated how swiftly the retail landscape is changing and the big bets retailers are now willing to make. (Though admittedly easier to do when a company, like PetSmart, is private.)
PetSmart was acquired by a BC Partners-led consortium in 2015 for roughly $8.7 billion, back when private equity investors touted the idea that “pet parents” would always and only go into stores to buy for their pets. Under BC Partners, it toyed with the idea of merging with rival Petco, an effort that stalled amid antitrust concerns.
But the rise of e-commerce came at the industry fast. More stores are no longer the solution, and it turns out pet parents are more than happy to buy their food and products online. In buying Chewy, PetSmart sought to stamp out a competitor and build an internet presence and infrastructure faster than it could on its own.
When the deal was announced, industry sources pointed to the surprising size of the deal, having found traditional retailers generally weary of making similar bets. They said to watch it as one of the first tests of large-scale unions of brick-and-mortar and e-commerce.
The marriage has gotten off to a rocky start. Several independent food companies like Champion Petfoods and Fromm Family Foods announced they were pulling their products from Chewy, angered over its sale to a corporate owner. High-end dog food brand Blue Buffalo, a Chewy favorite, went mass, selling in retailers like Target.
PetSmart CEO Michael Massey announced he was stepping down in August, four months after the deal was announced.
It has also taken longer than expected to achieve its synergies and its bonds have taken a hit. Earlier this month ratings firm S&P Global Ratings downgraded its corporate credit rating based on weakening operating performance and finances.
Some sources close to the situation say that PetSmart had little choice but to make a big e-commerce investment like Chewy. The sources also note it is still relatively early days, and the two may be able to find a balance.