Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Pet Grooming Chains
Transcript
- Lucas: So we've spent over a hundred episodes watching private equity buy up everything from dental practices to emergency vet rooms to pet crematoriums. But there's one piece of the pet economy that's still mostly fragmented, and it's starting to attract serious deal flow. Luna: Let me guess — dog groomers. Lucas: Exactly. Pet grooming in the US is roughly a $10 billion industry, and something like 85 percent of it is still owned by individual stylists working out of storefronts or mobile vans. The biggest player isn't a standalone chain — it's the grooming salons inside PetSmart. And even PetSmart only accounts for maybe 10 percent of the market. Luna: So the thesis is classic roll-up: take a fragmented, mom and pop service category, consolidate it under one brand, and use scale to drive down costs and boost margins. Lucas: Right. But grooming is harder than, say, self-storage or auto body repair. Because the core asset — the groomer — walks out the door every night. And groomers have historically been very independent. They don't want to work for a corporation. They want to set their own hours, keep their own tips, and build relationships with their clients. Luna: So the roll-up has to solve for retention. How do you keep a groomer from quitting and opening her own shop down the street? Lucas: That's the million-dollar question. The firms doing this now — and there are at least a half-dozen mid-market PE shops actively tucking in grooming salons — they're trying to offer something the independent shops can't: steady pay, benefits, a career ladder. Some are moving to a commission plus base model. But the margins are thin. A typical grooming salon runs on 15 to 20 percent EBITDA margins after you pay the groomer 50 to 60 percent of the service revenue. Luna: Which means you need to add a lot of dogs per day per chair to make the math work. Or you layer on something else — retail, boarding, maybe a subscription for recurring baths. Lucas: That's exactly what the regional chain Scenthound has done. They focus on routine hygiene — baths, nail trims, ear cleaning — and they sell a membership model. About 50 bucks a month for one bath per month. That recurring revenue stream makes the unit economics much more attractive. And it's exactly the kind of predictable cash flow PE funds love. Luna: Scenthound raised a growth equity round a couple years ago, didn't they? And they're franchising too. Lucas: They did. But the really interesting play is the private equity firms that are buying up multi-unit grooming operations outright — not franchising, but company-owned stores. One firm I've been watching is called Peak Rock Capital. They acquired a chain called Aussie Pet Mobile back in 2022, which is a mobile grooming franchise. More recently, they've been tucking in smaller regional chains. Luna: Mobile grooming is interesting because it solves the real estate cost problem. You don't need a storefront. But you've got the van maintenance and the fuel costs, and the groomer is driving between appointments. Lucas: Right. The unit economics are different. A mobile van might do six to eight dogs a day, whereas a brick and mortar salon can do fifteen to twenty per groomer. But the mobile model has higher customer acquisition because you come to them. And customers are sticky — once they find a groomer their dog tolerates, they don't switch. Luna: Which is exactly why a PE firm wants to own that relationship. The dog owner isn't price sensitive — they just want their dog to look good and not be terrified. So you can push pricing over time. Lucas: And that's the play. Consolidate the fragmented base, standardize the booking and billing software, maybe negotiate better deals on shampoo and supplies, and then gradually raise prices by 3 to 5 percent a year. If you retain the groomer and the customer, you get a nice compounding return. Luna: But the retention piece is the weak link. Groomers leave. And when they leave, they often take clients with them. So the PE firm needs to make the job better than going solo. Health insurance. Paid time off. A clear path to becoming a master groomer or a regional manager. Lucas: One firm I spoke with — I won't name them — they said they've had success by offering groomers a profit-sharing bonus on their chair. So if you hit a certain revenue threshold, you get a cut of the incremental. That aligns incentives. But it's early days. The grooming roll-up trade is maybe five years old. We haven't seen a full cycle yet. Luna: And we haven't seen what happens in a recession. Grooming is a discretionary service. If people tighten their belts, the dog can go a few weeks between baths. Lucas: That's the risk. But the counterargument is that pet spending has proven remarkably resilient. During the 2008 downturn, pet services spending actually grew. People treat their pets as family. They'll cut their own Starbucks before they skip the dog's grooming. Luna: There's also the question of the groomer shortage. The industry is aging. Fewer young people are entering the trade. That's a headwind for growth, but it also means existing groomers have more leverage. A PE firm that can provide a stable job with benefits might attract the best talent. Lucas: Exactly. And the firms that are doing this well are investing in training programs. They're essentially creating their own pipeline. If you can take someone with no experience and turn them into a competent groomer in six months, you've got a competitive advantage. Luna: Let's talk about the specific deals. What are the multiples looking like for grooming salons? Lucas: For a single location, you're typically looking at three to five times EBITDA, depending on the location and the tenure of the groomer. For a multi-unit platform with centralized operations, you might pay five to seven times. That's similar to what we've seen in other services roll-ups — vet clinics, dental practices. Luna: And the exit? The strategy is usually to build to a certain scale — maybe 50 to 100 company-owned stores — and then sell to a larger platform or to a family office. Lucas: Or to a strategic buyer like PetSmart or Petco. PetSmart already has grooming in-store, but they've been closing some underperforming locations. If a PE firm builds a strong regional chain, PetSmart might be interested in acquiring it rather than building from scratch. Or there's the possibility of an IPO, but that's a long shot for a services business like this. Luna: So the thesis is sound on paper, but execution is everything. And we're still in the early innings. Lucas: We're in the second or third inning, I'd say. The first wave was 2018 to 2022, when a few firms like the Riverside Company and Peak Rock started buying. Now we're seeing more middle-market funds come in. I think over the next five years, we'll see the industry go from 85 percent independent to maybe 60 percent. That's a massive shift. Luna: And what does that mean for the consumer? For the dog owner who's been taking their golden retriever to the same groomer for years, and suddenly that groomer is part of a chain? Lucas: If the chain is run well, the customer probably won't notice much — except maybe a slight price increase and a more polished booking system. But if the groomer leaves because they don't like the new corporate rules, the customer follows the groomer. That's the risk. The brand equity is really in the individual stylist, not the store name. Luna: So the winning firms will be the ones that treat groomers as partners, not interchangeable labor. Lucas: Exactly. It's a people business disguised as a services roll-up. Luna: You know, this reminds me of something we say on the show sometimes — that a lot of these episodes, they've helped me think differently about my own spending. And I think that's true for a lot of listeners too. We try to keep these conversations ad-free because we think the value is in the ideas, not in selling you something. If you've gotten something out of them, supporting us is one way to keep it going. Lucas: Yeah, it's a small thing, but it makes a difference. If you want to support the show staying ad-free, you can find us at buy me a coffee dot com slash fexingo. No pressure, no perks. Just knowing the show is useful to you is the main thing. Luna: And now back to the grooming roll-up. So assuming a firm does everything right — retains groomers, builds scale, increases pricing — what does the return profile look like? Lucas: A typical PE fund targeting 20 percent gross IRR. If you enter at five times EBITDA and exit at eight times, with some EBITDA growth from acquisitions and organic improvements, you can get there. But it's not a slam dunk. The failure cases are when you overpay for a chain that loses its key groomers, or when you expand too fast and can't staff the new locations. Luna: So it's a high-touch roll-up. You can't just buy and plug in software. You have to manage people. Lucas: Exactly. And that's why I think this category will ultimately be won by firms with operational expertise, not just financial engineering. The ones that build a culture where groomers want to stay. Luna: It's a fascinating intersection of pet love and private equity math. Lucas: It really is. And we'll be watching how it plays out. For now, the dogs are getting bathed, and the deals are getting done.