PetSmart is buying Chewy.com in possibly the biggest e-commerce acquisition ever

PetSmart, the nation’s largest pet-supplies retailer, has agreed to acquire Chewy.com, the market’s No. 1 online retailer.

The combination of Phoenix-based PetSmart, with 1,500 stores nationwide, and Chewy, based outside Miami, will enhance both companies’ reach, the companies said Tuesday. The acquisition, which is subject to customary regulatory approvals, is expected to close this summer.

Terms of the transaction were not disclosed. However, tech media site Recode, citing unnamed sources, reported that the deal is valued at $3.35 billion. That would make the sale of Chewy the biggest e-commerce acquisition in history, even larger than Wal-Mart’s $3.3-billion deal for Jet.com last year.

“Chewy’s high-touch customer e-commerce service model and culture centered around a love of pets is the ideal complement to PetSmart’s store footprint and diverse offerings,” Michael Massey, PetSmart’s president and chief executive, said in the announcement.

Chewy, which had been rumored to be a candidate for going public, has seen explosive growth since it was founded by Ryan Cohen and Michael “Blake” Day in 2011. The privately held company registered $26 million in sales during its first full year in business and logged more than $900 million in sales in 2016, the company said.

Although it is not yet profitable, Chewy was projected to increase revenue to nearly $2 billion this year — nearly a 7,600% growth spurt in just six years. It has about 5,000 employees nationwide.

The company built its following — more than 2 million customers nationwide — on customer service. Among its many campaigns, it sends hand-painted pet portraits as thank you gifts to 700 randomly selected customers every week.

“Since we started Chewy, we have been dedicated to understanding and satisfying the evolving needs of our customers to deliver the highest quality pet products and customer service,” said Cohen, Chewy’s CEO. “Combining our strong e-commerce expertise with PetSmart’s best-in-class infrastructure, footprint and breadth of offerings including services will help us wow our customers even more.”

Chewy is to operate as an independent subsidiary of PetSmart run by Cohen and stay focused on its current business strategy, while PetSmart will continue to execute its strategic initiatives across the combined company, PetSmart said.

According to 1010Data, Chewy.com holds 51% of the online pet food market, including 40.5% in direct sales and 10.2% in subscription sales. But Chewy had bigger aspirations.

“If you look at where we are today in the business, we’re still scratching the surface in terms of the total addressable market. We want to be No. 1. We’re No. 1 online. We want to be the largest pet retailer in the world,” Cohen said in a Miami Herald article in February.

Chewy had raised several rounds of capital — about $236 million in total — to support its growth. On Feb. 1, Wells Fargo Capital Finance became the latest investor, announcing an agreement to lend Chewy $90 million over the next five years.

Dahlberg writes for the Miami Herald/McClatchy.