Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group” or the “Company”) today announced that it has entered into a definitive agreement under which it will acquire Pet Supplies Plus (“PSP”), a leading omnichannel retail chain and franchisor of pet supplies and services, in an all cash transaction valued at approximately $700 million from affiliates of Sentinel Capital Partners (the “Transaction”). Additionally, the Company estimates that the net present value of the tax benefits related to the Transaction are expected to be approximately $100 million. The Transaction is expected to close in March 2021 and result in systemwide annualized revenue for Franchise Group, defined as total sales for both franchise and Company units, of more than $3.6 billion.

Founded more than 30 years ago, PSP is a mature and rapidly growing pet industry franchisor with a footprint of more than 500 locations, of which almost 60% are franchised. PSP is the leading franchisor in the pet industry, with superior unit economics and a turnkey franchise system driving a backlog of more than 185 new stores in various stages of development nationwide. PSP has a diversified revenue model comprised of corporate store revenue, royalties and revenue from internal distribution to franchisees. Additionally, PSP has developed broad and deep omnichannel capabilities, offering its neighbors varied cost-competitive shopping options through its convenient neighborhood locations, direct-to-consumer local delivery and buy-online-pickup-in-store model.

Brian Kahn, President & CEO of Franchise Group said, “We look forward to welcoming Pet Supplies Plus, its management team, employees, franchisees and neighbors to Franchise Group when this Transaction closes. PSP adds another franchise concept with strong unit economics, diversification into an economically resilient and secularly growing pet industry, and a brand that has and will continue to experience robust unit expansion from its franchise system. The additional scale and diversification that PSP will afford Franchise Group is expected to immediately lead to lower costs of capital and expanded free cash flow generation. We look forward to partnering with PSP’s outstanding and long tenured management team to accelerate their already ambitious expansion plans while leveraging Franchise Group’s best practice functions to drive incremental efficiencies.”

For fiscal year 2020, PSP is estimating total systemwide revenue of approximately $1.2 billion, company revenue of over $825 million and Adjusted EBITDA of nearly $80 million. Franchise Group estimates that the Transaction and the Financing, described below, will be immediately accretive to its Non-GAAP EPS in 2021. Franchise Group management will update its guidance inclusive of PSP upon closing the Transaction.

Closing of the Transaction is subject to the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as well as other customary closing conditions.

In connection with the signing of the definitive agreement, Franchise Group entered into commitments arranged by J.P. Morgan, Citizens Bank and Credit Suisse for $1.3 billion in new term loan credit facilities to refinance the Company’s existing term loan for its Buddy’s Home Furnishings, American Freight and Liberty Tax businesses and provide acquisition financing for the Transaction, including commitments from an affiliate of B. Riley Financial for up to $300 million in unsecured financings (the “Financing”).

B. Riley Securities served as financial advisor and Willkie Farr & Gallagher LLP served as legal counsel to Franchise Group. Piper Sandler, North Point, and Baird served as financial advisors to Pets Supplies Plus and Kramer Levin provided legal counsel.

January 25, 2021