What You Need to Know About Pet Industry M&As
A strong economy flush with private equity capital should make this another banner year for investment in the very attractive pet care market.
Recently, I had the pleasure of speaking about pet industry mergers and acquisitions (M&A) in front of 100 or so of my pet industry colleagues at the 2020 Pet Industry Leadership Summit in San Diego. While we covered a great deal of ground during the hour-long presentation, one of the main focuses was on whether the robust deal activity and multiples would continue its 10-year hot streak. I am happy to say that the answer is yes—at least for the next few years.
The U.S. economy is in the middle of its longest growth streak in history. Since I started doing pet M&A in 2009, the demand, multiples and activity for pet companies has been extremely robust. I know this isn’t news to readers, as you likely get many inbound calls each month from buyers or investors looking to acquire or make an investment in your company.
What has caused this unprecedented, continuing demand?
It’s a combination of two things that is driving demand for investment and/or buying opportunities. First, the pet industry is extremely attractive to investors and buyers; and second, the business environment in general is very strong.
Even during the recession of 2008/2009, the pet industry continued to grow, and it has continued to do so every year since. This has led to the well-known adage that our industry is “recession resistant.” In addition, Millennials now represent the largest consumer demographic in the U.S. and are willing to spend more money on their pets than any other generation. Finally, investors are always interested in investing in a space with a high degree of M&A activity, which definitely describes the pet industry.
Our current overall business environment continues to shine in the following areas:
• Strong economic indicators—The economy is strong, reflected by low unemployment figures and robust equity markets.
• Cash-heavy balance sheets—Strategic buyers are sitting on a record amount of cash and are seeking ways to utilize it.
• Significant private equity capital needs to be deployed—Private equity firms remain under the gun to deploy cash in new investments. There are over 3,500 private equity firms in the U.S., many of which are facing looming fund deadlines.
• Easy access to debt financing—The market for senior and subordinated debt financing is robust and highly competitive; interest rates and covenant terms remain favorable for borrowers.
What segments of the pet industry are at the forefront of M&A demand?
While virtually any healthy pet company will be appealing to buyers or investors, based on my ongoing discussions with private equity firms, companies that provide services (boarding, pet sitting, grooming, etc.) to pet owners or sell into the veterinary channel are in highest demand and command the highest premiums. The main driver of this is the “stickiness” these businesses create—customers tend to be more loyal to service providers over product providers—and the inability for Amazon/Chewy to easily come in and take over these segments of our industry.
So, while no one has a crystal ball here, it’s tough to see things getting any better than they are now from an M&A perspective over the next several years. If a sale of your company is in your future, you still have several years to put the spit and polish on your business to achieve a premium valuation and attract significant demand from buyers/investors.
Based in Boulder, Colo., Carol Frank is the founder of four companies in the pet industry and a managing director with BirdsEye Advisory Group, where she advises pet companies in M&A transactions and exit planning. She is a former CPA, has an MBA, is a Certified Mergers and Acquisitions Advisory (CM&AA) and holds Series 79 and 63 licenses. She can be reached at firstname.lastname@example.org.