This past year was a big year for myself and my partner, not only did we purchase our first home we also welcomed a fur baby into the family.
As a new ‘fur parent’ I have become familiar with the big yellow pet stores that are scattered around Australia – commonly known as Greencross Limited (ASX: GXL) to us investors.
According to the Greencross website, Greencross is Australasia’s largest integrated pet care company, with over 250 pet specialty retail stores or vet clinics in Australia and New Zealand. In any market brand awareness is an important commodity and Greencross has this in spades – think how many times you have passed a Greencross Vet, Petbarn or City Farmers.
However, in 2018 Greencross responded to market whispers that there was private equity interest in their company.
This presented an opportunity to reflect on my holdings and think if I really wanted to be a long-term shareholder of Greencross. Upon careful consideration, I decided to exit my position in Greencross and redirect my money to other investment. Here are my reasons why:
- Like many retailers, Greencross is prone to the threat of online shopping and the convenience it brings. An example of this is technology giant Amazon has recently introduced a line of pet care products. In my experience when Amazon enters a market it tends to win and win big.
- The Australian & New Zealand pet care market is relatively small when compared to its US and European relatives, with any new entrance having the potential to cause rapid price drops and thinning out of customers. With this in mind, ASX-listed National Veterinary Care (ASX: NVL) was founded by ex-Greencross executives and has been purchasing privately owned clinics across Australia’s eastern seaboard. Competition is great for me as the consumer (cheaper products) but not so great for me as the investor.
Conclusion
Private Equity coming to town was welcomed news for existing shareholders as the share price jumped on the news. However, as the competitors come into the market my reason for holding quickly disappeared and I decided to free up capital and invest in other company.
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