Petco’s Debt Load Raises Eyebrows After PE Re-IPO

THE PE REPORT

June 29, 2025

Petco: A Story of Private Equity, Debt, and Re-IPO

Before we dip our toes into the pool of potential returns and exit strategies, let’s start with a stark reminder: private equity isn’t just about rescuing companies from the brink of destruction. Too often, it’s a tale of high debt loads, tight cost management, and financial engineering to maximize returns. And one of the latest companies to experience this is none other than Petco Health + Wellness Co. Inc. A popular retailer of pet food and supplies, the company’s balance sheet has been saddled with billions in debt, largely courtesy of private equity ownership.

Heavy Baggage Pre-Re-IPO

In January 2021, Petco returned to public markets with an initial public offering (IPO), raising an impressive $864 million. However, prior to the IPO, its primary shareholders had been private equity firms CVC Capital Partners and Canada Pension Plan Investment Board (CPPIB), who jointly acquired the firm for $4.6 billion in 2016.

The acquisition was financed using a combination of equity, debt, and a large chunk of borrowed money, which went straight onto Petco’s balance sheet. Consequently, when Petco filed for the re-IPO, it was lugging around $3.4 billion in total debt. Two-thirds of their offering proceeds — a hefty $600 million — were designated to pay down a portion of that debt. However, it represents a drop in the ocean compared to what’s still outstanding.

Financial Engineering and the Debt Dragon

Red flags or savvy business strategies? The private equity modus operandi has often been to increase debt levels to finance acquisitions, betting on the firm’s future success to offset the burden. This was certainly the case with Petco, and it has had significant implications for the firm’s financial health.

In 2019, Moody’s downgraded Petco’s credit rating, citing concerns about its ability to generate sufficient profit to meet its debt obligations. But Petco’s private equity owners were busy positioning the company for its re-IPO, streamlining operations and focusing on growing its omnichannel business.

So What’s the Takeaway?

The Petco story is a sharp reiteration of the impact of private equity buyouts on the financial health of companies they acquire. Stark debt loads, financial engineering, and high-pressure strategies to boost profitability in the lead up to exits are not exceptions. They are often the rule.

Petco’s post-IPO performance will be watched with great interest by all those weary with the excessive leverage often associated with private equity buyouts. Whatever the outcome, it serves as a reminder that high returns for the few can nourish high risk for the many. Investors and employees alike too often get caught in the wake of private equity adventures, and this story adds yet another chapter to the unsanitized tale of modern PE.

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