CG Carlyle Group Inc

Private-equity firms are examining a possible purchase of Petco Holdings Inc., the pet-store chain that filed to go public last month, according to people familiar with the matter.

Petco, which is already owned by private-equity firms, is in the early stages of exploring a sale alongside its preparations for an initial public offering, the people said. It plans to meet next week with potential buyers, including private-equity firms Carlyle Group LP and KKR & Co., the people said.

It is unclear how much Petco could fetch in a sale, but people familiar with the matter said when it filed the IPO papers that the company could be worth about $4 billion. TPG and Leonard Green & Partners, Petco's current owners, said in the filing that the market for pet services is thriving.

Petco and its rivals have benefited from increasing spending on pets in recent years, even during the steep recession that followed the financial crisis. In its filing, Petco projected that American spending on pets will reach $76.6 billion in 2015, up from $62.7 billion in 2010, even though the percentage of U.S. households with pets is little changed at just over half.

Petco sells everything from food to toys and vitamins for cats, dogs, reptiles and other pets. In addition to its stores, the company has "Pooch Hotels" that offer day care, grooming and boarding services.

The company, founded in 1965 as a mail-order veterinary-supplies business, has more than 1,400 stores in the U.S. and Puerto Rico under its namesake and Unleashed by Petco brands, along with 13 stores as part of a joint venture in Mexico. TPG and Leonard Green took Petco private in 2006 in a $1.7 billion deal.

The company ended its 2014 fiscal year with a profit of about $75 million on roughly $4 billion in net sales, compared with a year-earlier profit of about $85 million on $3.79 billion in sales.

Meanwhile, comparable sales—a key metric in the industry that Petco defines as stores open for at least a year along with online sales—rose in each of the 21 most recent quarters, averaging a 3.5% increase since fiscal 2005, the retailer said in its filing.

If it were to be sold to a buyout group, Petco would follow in the footsteps of larger rival PetSmart Inc., which in March went private in a deal valued at more than $8 billion. The purchase of PetSmart, by a group led by private-equity firm BC Partners Inc., was the largest leveraged buyout in 2014. Such activity has been muted of late as corporate buyers have largely squeezed buyout firms out of the mergers-and-acquisitions market and as regulatory restrictions on leverage impede deal making.

Private-equity firms preparing for an IPO often simultaneously explore a full sale, in what bankers and lawyers call a "dual-track" process. Full sales enable buyout firms to exit investments more cleanly and quickly. The recent stock-market volatility also could make it more likely that some companies contemplating going public opt for M&A instead.

In early August, before the latest round of volatility began, the private-equity owners of SunGard opted to sell the financial-software company to a strategic rival, Fidelity National Information Services Inc. They agreed to a lower price than they were seeking in a possible IPO, people familiar with the matter have said.

Write to Dana Mattioli at dana.mattioli@wsj.com and Telis Demos at telis.demos@wsj.com

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(END) Dow Jones Newswires

September 02, 2015 18:35 ET (22:35 GMT)

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