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Why More Companies Like Petco Are Going Public Again In Second-Time IPOs

Petco went public yet again on Thursday, marking a return to the public markets for a second time after going private. The San Diego-based retailer’s latest initial public offering is part of a small but growing trend of companies returning to the public markets after being bought out by private equity firms.

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Petco began trading on the Nasdaq on Thursday under the ticker WOOF after the pet supply company raised $864 million through its IPO. The company first went public in February 2002, raising $275 million through its IPO and listing on the Nasdaq under the ticker PETC, according to Crunchbase. TPG Capital and Leonard Green & Partners took the company private in 2006. The new owners of the company flirted with the idea of taking it public again, even filing initial paperwork to do so in August 2015, but ended up selling Petco to CVC Capital Partners and Canada Pension Plan Investment Board for $4.6 billion.

Petco’s not alone in going public a second time after being spun off by a private equity firm. Cybersecurity company McAfee went public for a second time in October after being acquired by Intel in 2011 and then spun off in 2017, with TPG and Thoma Bravo investing in the company. Also in October 2020, Phoenix-based pool supply retailer Leslie’s Swimming Pool Supplies went public for a second time. The company began trading on the Nasdaq in 1991 before being taken private a few years later by private equity firms, and is now trading again on the Nasdaq under the ticker LESL.

There’s been a handful of second-time IPOs recently because of favorable market conditions like lower interest rates and private investors seeking yield in their investments, according to Louis Cordone, senior vice president of data strategy at professional services firm AST. The phenomenon is somewhat cyclical, based on how the markets perform, he said.

“If you bought these companies at a lower price and took them private, now’s a chance to really make your investment come into the positive that I think is the driver here,” Cordone said. “These companies, these PE firms that take their companies private, they’re timers.”

The phenomenon tends to occur when equity markets are outperforming, he said: “If you think about the 2000s, late ’90s stock bubbles, that was a moment when IPOs were super hot and that was driven by a lot of cash and turning to the equity markets for these yields.” 

Many companies that have gone public in recent months have seen their shares soar, despite the raging COVID-19 pandemic. Equity markets are doing well because alternative investments are underperforming, according to Endurance Advisory Partners’ managing director Steven Patrick.

Interest rates for cash are at zero and interest rates for bonds are close to zero. If and when interest rates go up, bond prices go down, he said. That asymmetric risk makes stocks more attractive to invest in.

Still, a company going public twice is a relatively rare occurrence, according to Patrick. 

“A transaction of going public and for a public company to go private, it’s often thought of as a once-in-a-lifetime kind of occurrence,” he said. “In the lifetime of a company, it’s once maybe every 20 years.”

COVID-19 stimulus programs have injected fresh cash into the economy, and that money is going into the market looking for yield and equity, Cordone said. It’s also easier for companies to  go public via IPO alternatives like direct listings or a merger with a special purpose acquisition company.

Equity markets have “skyrocketed” with the extra stimulus, Cordone said, and that, coupled with near-zero percent interest rates, has made going public increasingly attractive to investors. 

Another example of an acquired company going public now is Qualtrics, the experience management company that was acquired by SAP for $8 billion before it planned to go public in 2018. Last month SAP said that Qualtrics would be spun off for an IPO. 

“It’s more likely that we’ll see second IPOs more because we’ll see more total IPOs now because the stock market is doing very, very well,” Patrick added.

Illustration: Dom Guzman

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