What an amazing industry we are part of right now! Who would have guessed six months ago that most pet companies would be realizing record sales and product shortages because of increased demand? If you are like me, you are counting your blessings every day that you make your living in this wonderful, thriving and growing segment.
But does our industry’s continued success necessarily make this a good time to consider selling a pet company? To find out, I spoke with two of the pet industry’s mergers and acquisitions (M&A) movers and shakers, as well as a few other folks active in the M&A market. Overall, the answer seems to be a resounding, “Yes!”
Jim Heim, president of business development for Central Garden and Pet—and one of our industry’s most respected veterans—confirmed that his company is actively seeking acquisitions, but not just any acquisition. Sustainable long-term growth, a positive benefit to both pets and their parents, and innovation are the qualities that get Central excited about an acquisition. Heim said that the company is not seeing much deal flow right now, but he strongly believes—as do I—that M&A activity will surge when a vaccine comes out. The challenge right now is that it can be difficult to travel to visit people’s plants and offices, and potential sellers are focused on getting as much product out the door as possible to meet demand.
Still, the pet industry is one of the safest places an investor can put capital, and Heim strongly believes that is not going to change anytime soon.
Manna Pro is one of the pet industry’s most active acquirers and closed on its most recent transaction, the acquisition of Doggie Dailies, right smack in the middle of the COVID crisis. When I asked the company’s executive vice president of business development, Roger Cagle, about Manna Pro’s level of interest in making further acquisitions, he enthusiastically replied that it is the company’s intention to keep the pipeline full of opportunities, and that it is more active than ever. He believes that the COVID crisis has changed some sellers’ timeline perspectives, and that instead of waiting three years to sell, they may be ready to sell now in order to take advantage of the strong tailwinds in the pet market.
Cagle went on to note that many companies have seen a huge “COVID bump” in business due to the pet-buying frenzy, and that a potential acquisition target must prove that the bump is sustainable in the long term before Manna Pro will pay a premium multiple.
A discussion with the broker/dealer for BirdsEye Advisory Group, Jay Turo of GT Securities, further highlighted the amazing performance of the pet care market. While M&A activity in the industry is on fire —we signed up two deals in the last few weeks—other industries are truly suffering. Many of Turo’s clients have experienced a significant slowdown in M&A transactions, even in industries that are benefiting from COVID.
“Everyone is waiting to see what is going to happen,” he explained. “Sellers expect a high multiple because they see what is happening in the stock market, but many buyers are hesitant to pay a premium because we don’t know how long this crisis is going to last.”
Turo went on to say that they are seeing more re-financing transactions because of low interest rates, and because re-financing is not full of emotions like the full-blown sale of a company. In addition, re-financings can get done without in-person meetings. Like Heim, he believes that once there is a vaccine, the M&A spigots will open.
Finally, I spoke with Andrew Peix, director of business development at Gauge Capital, about the level of activity he has observed over the past few months. I was very surprised when he told me that they had closed four deals since COVID started! While he noted that deal flow is about 70% of what it was in 2019, Peix believes that there may be a flood of deals happening in the fourth quarter because of the potential of higher capital gains rates in 2021.
From my perspective, I have seen a strong uptick in interest for pet companies among buyers over the last few months. It was brutally quiet from March through July, but then slowly it started to dawn on them that our industry truly is recession resistant, that people turn to their pets more than ever in times of crises, and there isn’t a better time to invest in our industry’s future.
Carol Frank of Boulder, Colo., 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 highly values and incentivizes referrals and can be reached at firstname.lastname@example.org