Playing poker brings H&F and EQT to their limit

But it is becoming increasingly clear that investors are interested in the online retailer – they are approaching their pain threshold. In the bidding circles there is already talk of “sporting dimensions”. A source says: “It is unlikely that there will be any big jumps.”

In financial circles it is already said that the bidders have “slipped away” from the process. Even with the current bids, it will be extremely difficult for the takeover to pay off in the medium term. There is not much leeway left.

The first signs of nervousness among potential buyers appeared at the end of last week. After EQT had only just trumped an improved offer from the competitor with an official offer of 470 euros by ten euros, analysts expected that H&F would again go up significantly. But the US investor just pulled the same.

Zooplus ‘share price is well above the analysts’ targets

The fact is: the current bids are far beyond what analysts previously believed Zooplus had as potential. In mid-May, Barclays announced a target price of 185 euros. Analyst Christian Salis from Hauck & Aufhäuser originally named EUR 225 as a target price and accordingly already described the first offer of EUR 390 as attractive – and advised it to be accepted. But then the price continued to rise.

All experts agree that Zooplus still has great potential. “In the long term, it is quite realistic that the online share in retailing pet supplies will increase from around 15 percent today to up to 50 percent,” predicts Volker Bosse, trade and consumer goods expert at Baader Bank.

The pet supplies market is growing by six to seven percent each year, driven primarily by online sales. From EQT’s point of view, Zooplus is well positioned. The company has expanded in Europe and has a leading position in the respective markets, it is said.

The development shows which growth prospects the company still has, also emphasizes analyst Bosse. He refers to US companies in the industry. Compared to them, “Zooplus’ shares are not yet overpriced, even at the current price”.

The model is the US provider Chewy. With sales of $ 7.1 billion last year, its market capitalization is currently at $ 27 billion – almost four times its sales. However, the company has also grown at high double-digit rates in recent years.

Investors want to accelerate the growth of Zooplus

Zooplus has increased its course by 75 percent since the takeover battle began. But the market capitalization is still at 3.46 billion euros – which does not even mean double the turnover of 1.8 billion euros.

The problem with this: Even in the corona year 2020, when online trading was booming like never before, Zooplus only grew by 18 percent. For comparison: competitor Fressnapf increased online sales by 40 percent last year.

This is exactly where the bidders want to start. The calculation: If the company invests more consistently instead of looking at profitability, it can better exploit its growth potential. For example, EQT promises in its offer to “promote and accelerate investments that are necessary for the growth of the Zooplus Group’s business”.

With the entry into Zooplus, EQT wants to add another building block in order to benefit from the growing importance of pets for consumers. The Swedish investor already has several investments with which he wants to build an ecosystem around pets. These include the IVC Evidensia animal clinic chain, Bought by Many animal insurance and the Musti Group, which sells products for pets in Scandinavia.

Both potential investors indicated in their offers that they would be willing to put further funds into Zooplus even after the purchase. “In the short term, this will entail a lot of investments,” said the bidder circles. A lot of work still needs to be done to bring Zooplus to higher growth rates.

But this is precisely where the escalated bidding war is causing problems: the higher the purchase price, the less room there is for further investments, according to financial circles. At Zooplus, too, you feel flattered by the high bids. But the management is aware that the company will in no way benefit from it – on the contrary.

Waiting for comments from management and the supervisory board

It was precisely because the current shareholder structure saw its growth slowed down that the management actively initiated the search for a new investor. Zooplus is striving to “find a financial and strategic partner to strengthen its own competitive advantage and to expand its market leadership in the growing and rapidly changing European pet market in the long term,” the company announced.

If an investor takes over the majority and takes the company off the stock exchange, it is hoped that the scope will be greater. In the “strategic partnership” that Zooplus has agreed with H&F, there is talk of a possible “foregoing short-term profitability in favor of long-term value creation”.

But if Zooplus now has to generate all of its investment funds itself, the road could be more rocky than hoped. And if neither of the two bidders succeed in acquiring such a high stake that they can quickly remove the company from the stock exchange, the share price should soon fall significantly again.

Much now depends on how the reasoned opinion of the management and supervisory board of Zooplus turns out to the offer of the Swedish investor EQT. This is expected at the end of this week at the earliest, probably more likely next week. Since the structure of the offers is largely identical, the Zooplus management should basically support EQT in the same way as the H&F bid.

H&F still sees itself at an advantage in the bidding war. The investor has already secured 17.8 percent of the shares through an agreement with major shareholders. But this basis is fragile. Because if EQT offers more and H&F does not counter the offer within five days, these shareholders are no longer bound by their commitment.

More: Investor Hellman & Friedman draws level with EQT on Zooplus offer