Letter to BC Partners | BC Partners Response
Washington, D.C. – United States Senator Warren (D-Mass.) is calling out private equity firm BC partners, owner of PetSmart, for recent reports that the firm is attempting to sell PetSmart to a Special Purpose Acquisition Company (SPAC) backed by private equity firm KKR & Co. In November 2021, Senator Warren raised concerns about the consequences of BC Partners’ 2015 acquisition of PetSmart amid reports that the purchase resulted in cost-cutting and mismanagement that endangered the safety of PetSmart’s workers and pets entrusted in PetSmart’s care. BC Partners, in response to Senator Warren’s letter, failed to provide any of the information that Senator Warren requested on their harmful business practices. Now, news of a potential sale to a SPAC – financial structures that are notorious for financial and regulatory abuses at the expense of investors – is raising new alarms about BC Partners’ disregard for worker safety and benefits as they seek to rake in profits.
“BC Partners’ inability to provide answers about how PetSmart treats their workers, and the pets entrusted in their care, has escalated my concerns about the private equity firm’s disregard for worker safety as they seek ever-higher profits. In light of recent reporting that a private equity-backed SPAC is considering purchasing PetSmart, I remain concerned that workers are yet again going to get the shaft in this deal,” said Senator Warren. “I have previously raised concerns about the lack of transparency around the SPAC process, which often appears to be structured to exploit retail investors to the benefit of large industry insiders. I will be watching closely to ensure that we are holding private equity firms and their SPACs accountable and that PetSmart workers are protected from the consequences of this deal.”
In 2015, BC Partners purchased PetSmart for $8.7 billion, the largest leveraged buyout of the year. According to a report by United for Respect, PetSmart’s acquisition was accompanied by mismanagement and significant cost-cutting. During the COVID-19 pandemic, as pet adoption boomed and customer traffic at PetSmart stores increased, PetSmart lacked safety precautions and refused to grant hazard pay to employees. At the same time, they cut staffing and increased employee workloads. Meanwhile, BC Partners appears to have followed the private equity playbook to line its pockets. Immediately following its acquisition, PetSmart returned an $800 million dividend to its new owners, allowing BC Partners to recoup nearly 40% of its initial acquisition cost within ten months of the deal. In the middle of the pandemic, BC Partners also took steps to split PetSmart and Chewy, the more profitable online pet retailer, and transfer all of PetSmart’s shares in Chewy – valued at $26 billion – to themselves.
Senator Warren has been a vocal critic of abuses by the private equity and SPAC industries. In October 2021, she reintroduced the Stop Wall Street Looting Act, comprehensive legislation that would reform the private equity industry by holding private equity firms liable for the responsibilities and debts of companies under their control and increase transparency by requiring private equity managers to disclose fees, returns, and other details about their funds. In September, Senator Warren and Senators Sherrod Brown (D-Ohio), Tina Smith (D-Minn.), and Chris Van Hollen (D-Md.) sent letters to six creators of SPACs raising concerns about abuses by the creators and operators of SPACs, including reports that insiders are taking advantage of legislative and regulatory gaps at the expense of ordinary investors.