It Has to be Good
What does J. M. Smucker, a company known for its peanut butter, jelly and coffee, want with a pet food and treat company?
The answer, of course, is more sales and profits from a category that, by nearly all accounts, is growing by leaps and bounds, with no end in sight. Smucker announced in early February that it is purchasing Big Heart Pet Brands, the manufacturer of such well-known products as Milk-Bone, Kibbles ‘n Bits and Meow Mix, for about $5.8 billion. Company officials say the deal will allow Smucker to quickly enter what is becoming an extremely competitive fight among some pretty heavy hitters in the pet food and treat markets.
Purchasing Big Heart, with its well-known brands firmly established as leaders in the market, also makes sense. Big Heart was owned by private-equity investors, and these guys were looking to cash out with reportedly double their money after just about four years of ownership. Smucker, with its marketing and distribution programs well established and in need of a growth engine to reignite its status on Wall Street, is a logical new entry into the marketplace, which already includes Mars and longtime heavyweight Nestlé Purina.
More importantly, on the eve of the annual Global Pet Expo in Orlando, Fla., this purchase shows what top corporate people think about the pet food market. The sky, it appears, is the limit with this category and a lot of companies are searching for ways to get more involved with the market, even to the tune of the nearly $6 billion that Smucker is shelling out for the right to sell dog and cat food.
The pet food/treat segment is so lucrative that there is little doubt that Smucker will not be the last company to buy into the pet marketplace. Other human food companies will make plays to enter the field, and it is a good bet that they will do so through the acquisition of existing companies.
In the end, this is a good news/bad news scenario for other pet manufacturers. The good news is that money is flooding the market in search of the next great company. The bad news is that you have to be at the very top of your game to cash out on this, and only a few companies need apply.
Let the chess game begin—or should we say, continue.