Aug 5, 2014
By Debbie Phillips-Donaldson
For the petfood industry, the “lazy days of summer” cliché no longer seems to apply – at least not when it comes to investments, mergers and acquisitions. Consider the following activity since July 1:
Whew, all in just one month’s time! And while each transaction comes with its own back story, the overall take-away is that petfood continues to be a good investment, both for companies already in the industry (investing in or acquiring smaller companies) and outside private equity firms making a stake in the seemingly recession-resistant pet care market.
For example, Agrolimen, the Spain-based parent company of Affinity Petcare, is implementing its strategic plan to expand internationally, outside its traditional home base of Europe. It started on that path in 2013 by purchasing a 50% stake in Mogiana Alimentos in Brazil, in the deal that finalized recently. Now Agrolimen is expanding further – and into new categories – with its investment in Nature’s Variety, the St. Louis, Missouri, USA-based company best known as being a leader in the raw petfood category. (Nature’s Variety already counted a private equity firm, Catterton, as a shareholder.)
Frontenac, a private investment firm known for its transactions with food and consumer companies such as Chipotle, Health Valley Foods and Levy Restaurants, is making its first foray into the petfood market with its funding of Cloud Star, a natural pet treat maker. This has been a common event over the past several years, with private equity and venture capital firms finding the pet care market an attractive opportunity for new business.
“This is a very exciting time for the pet industry,” said Carol Frank, managing director for SDR Ventures, which advised Cloud Star on this transaction, as reported by Digital Journal. “We are seeing growing companies like Cloud Star attracting great private equity firms, like Frontenac, at an extraordinary rate.”
Frank, a longtime pet industry expert, wrote back in 2012 that she received at least one inquiry a week from private equity firms wanting to invest in the industry. “The action the pet industry has seen is primarily attributable to institutional capital’s demand for recession-resilient companies and innovative operators. Since the demographics in the pet industry are such that customers continue to own pets even in recessions, and operators typically find creative solutions to address underserved markets, demand has been piqued in the pet industry,” she wrote then for the American Pet Products Association member newsletter. “There are a large number of companies with great products and superb management teams. If they can achieve some scale and profitability upward of US$1 million to US$2 million EBITDA [earnings before interest, tax, depreciation and amortization], they become extremely attractive to private equity investors.”
As for Mars’ acquisition of the P&G brands, that deal seemed to close awfully fast – in less than four months since the initial announcement – for one of its size. Perhaps that’s an indication of how quickly Mars wanted to bring the Iams, Eukanuba and Natura brands into its vast, global fold; it also is exercising its option to buy the brands in some parts of Asia Pacific, Middle East and Africa, including Australia, Japan and Singapore. That leaves Europe, and considering how speedily P&G has moved on from its petfood business once it found a buyer – and is now purging as many as 100 of its consumer product brands – one can imagine the European petfood business will sell soon, too, possibly even at a below-market value.
Remember, the year started with Nestlé Purina PetCare buying Zuke’s and saw smaller petfood companies like I and Love and You receive more financing. With this latest round of transactions, we should not expect the petfood buying and investment frenzy to slow down anytime soon.
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