Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Dog Daycares
Transcript
- Lucas: Let me tell you about a typical dog daycare center in a mid-sized American city. It's a 5,000-square-foot facility with an indoor play area, maybe a small outdoor run, a few kennels for boarding, and a pickup-and-drop-off van. The owner is usually someone who started it because they loved dogs, not because they loved spreadsheets. Revenue runs between $850,000 and $1.5 million a year. And the EBITDA margin? Somewhere around 30 percent. Luna: That margin is pretty fat for a small business. So it's no surprise private equity has taken notice. Lucas: Exactly. Over the past five years, private equity has quietly rolled up hundreds of independent dog daycares and boarding kennels across the United States. The play is almost textbook: buy a fragmented market of mom and pop operators, standardize operations, add a corporate layer, and sell to a larger platform or take it public. Today we're looking at two of the biggest names in this space — Camp Bow Wow, which was acquired by PE firm The Vistria Group in 2021, and The Dog Stop, which has grown from a single location in Pittsburgh to over 60 franchises under PE backing. Luna: I've seen Camp Bow Wow locations popping up everywhere. They have that branded blue and yellow awning, the webcams so owners can watch their dogs play. It feels very polished compared to the local kennel I used to use. Lucas: That polish is exactly what PE pays for. Camp Bow Wow was founded in 2000, and by 2018 it had about 100 franchise locations. After Vistria came in, they accelerated expansion — today it's over 200 locations. The Dog Stop started franchising in 2016, and with PE backing, they've been opening about 10 new locations a year. The pitch to franchisees is compelling: a turnkey operation with a proven playbook, national marketing, and better negotiating power with suppliers. Luna: But what's the actual unit economics for a franchisee? How much do they need to put in, and what do they get out? Lucas: Camp Bow Wow's franchise disclosure document from 2024 shows the initial investment for a new location is between $600,000 and $1.2 million, including the franchise fee. The average unit does about $1.2 million in revenue, and the owner can expect to take home roughly $150,000 to $200,000 after royalties and operating expenses. That's a decent return, but it's not a gold mine — the real value for PE is in the aggregate. When you own 200 locations, you can centralize payroll, marketing, real estate, and procurement. That corporate overhead is maybe 5 percent of revenue, but it's enough to push the overall margin of the platform into the low 20s. Luna: So the PE firm isn't trying to squeeze each individual daycare for maximum profit. They're making money on the roll-up itself — the multiple arbitrage. Lucas: Right. They buy individual centers at 5 or 6 times EBITDA, fold them into a larger entity, and then sell that entity at 10 or 12 times EBITDA. The multiple expansion alone can double their money, even if the underlying operations don't improve much. And in this case, the operations usually do improve because you get better software, better training, and better insurance rates. Luna: But there's a catch in the pet industry, right? Pet spending is somewhat recession-resistant, but it did dip in 2023 when inflation hit. And there's a labor problem. Lucas: Big time. The American Pet Products Association reported that total pet industry spending grew only 4 percent in 2024, down from double-digit growth in the pandemic years. And the biggest cost for a daycare is staff — you need one employee per 10 to 15 dogs, and they need to be reliable and bondable. Turnover in pet care is high, probably 60 to 80 percent annually. PE firms are experimenting with better wages and benefits to stabilize it, but it's a real headwind. Luna: Some of these roll-ups also hit a ceiling when they run out of good independent operators to acquire. The Dog Stop has been opening more corporate-owned locations lately because the franchise pipeline is slowing. Lucas: That's a classic sign that the roll-up is maturing. Once you've bought the best independents in the top 50 markets, you have to either build from scratch — which is slower and riskier — or buy smaller chains that might have operational issues. The Dog Stop opened 12 corporate locations in 2025 alone, which is a shift from their predominantly franchise model. Luna: It's interesting because the pet services space overall is still fragmented. There are thousands of independent daycares and boarders that haven't been approached. But the ones that are large enough to interest PE — say, doing $1 million in revenue with clean books — that pool is finite. Lucas: And the multiples have been creeping up. Five years ago, you could buy a decent independent daycare for 4 times EBITDA. Now sellers are asking 6 or 7 times because they've read the news about PE consolidators. The deal math gets tighter. But the firms that got in early, like Vistria with Camp Bow Wow, are sitting on significant paper gains. Camp Bow Wow's revenue is estimated at over $200 million now, and a sale or IPO would likely value it at above $1 billion. Luna: Speaking of which — we should note that these conversations, like this one, are exactly why we keep the show ad-free. We want to dig into the numbers without any sponsor telling us to frame things a certain way. If you've found value in episodes like this, supporting us at buy me a coffee dot com slash fexingo helps keep that independence going. Lucas: Yeah, it's a small gesture that makes a big difference. No pressure, but if the show has helped you understand a corner of the business world better, that link is there. Okay — back to the dogs. Lucas: I want to talk about one specific risk that PE firms in this space often underestimate: the concentration of revenue around holidays. For most daycares, July 4th week and the December holidays can account for 20 to 30 percent of annual revenue. If a new competitor opens across the street, or if there's a local outbreak of kennel cough, that revenue is gone. Luna: Right. And kennel cough is a real issue. A single outbreak can shut down a facility for two weeks. Larger chains have protocols, but they can't eliminate the risk entirely. Lucas: Another risk is the shift toward in-home pet sitting services like Rover and Wag. They've eaten into the boarding side of the business. The Dog Stop actually added a mobile grooming van to some locations to diversify. Camp Bow Wow has been pushing their 'Camp Add On' services — training, grooming, even a webcam subscription for owners. Luna: So the PE playbook here is the same as in any fragmented service industry: consolidate, centralize, cross-sell. But the unit economics are fragile — labor is expensive, holidays are lumpy, and you can't just raise prices 20 percent without losing customers. Lucas: Exactly. The firms that succeed are the ones that genuinely improve the operations, not just the ones that do financial engineering. Camp Bow Wow's parent company invested in a custom software platform that handles scheduling, billing, and owner communication. That alone improved labor efficiency by about 15 percent. That's real margin expansion. Luna: So what's the exit look like for these firms? I assume they're not planning to hold forever. Lucas: The most likely exit is a sale to a larger private equity firm or a strategic buyer. There are a few large pet retail and services companies — like PetSmart, which already owns PetsHotel and Banfield — that could be interested. Camp Bow Wow would be a natural fit for a larger pet ecosystem. Another possibility is an IPO, but the market for pet services IPOs is tepid right now. I'd expect a trade sale in the next 18 to 24 months for both companies. Luna: And for the independent owner who hasn't sold yet? What should they be thinking about? Lucas: If you're running a $1 million daycare and you get a call from a pe backed platform offering 5.5 times EBITDA, that's probably a fair price. But you should negotiate for an earn-out tied to future performance, because the buyer is going to want you to stay on for at least two years to transition the relationships. And honestly, if you're hitting 30 percent margins and you enjoy the work, there's no rush to sell. The multiples might go higher. Luna: Or lower, if the economy dips. But that's the bet. Lucas: That's always the bet. For now, the dog daycare roll-up is still in its second inning. There are probably 5,000 independent daycares in the US, and the big chains have maybe 600 total. Plenty of room to run.