How will COVID-19 affect pet food M&A in 2020?

While pet food merger and acquisition activity has been strong to date in 2020, the pandemic may lead to smaller deals and a focus on profitability.

(Ermolaev Alexander | Shutterstock.com)
(Ermolaev Alexander | Shutterstock.com)

Our annual list of global pet food leaders includes some that grew significantly year-over-year thanks to one or more acquisitions. Given the uncertainty and economic havoc wrought by the COVID-19 pandemic, what’s the outlook for mergers and acquisitions (M&A) in pet food for the near future?

In its spring 2020 report, Cascadia Capital, an investment bank that focuses on the U.S. pet industry, managing director Bryan Jaffe said the current market turbulence won’t stop consolidation but will likely affect the nature and timing of acquisitions.

Pet food M&A alive and well in 2020 to date

So far this year, we’ve seen pet food M&A activity around the world. January and April 2020 were the busiest months, with Empresas Iansa of Chile selling its pet food business to Camil of Brazil, United Petfood of Belgium acquiring Italian private label manufacturer Effefe and Whitebridge Pet Brands buying Cardinal Pet Care (both in the U.S.), all in January 2020.

In April 2020, Nestlé Purina PetCare said it’s buying U.K.-based Lily’s Kitchen, C.J. Foods completed its acquisition of American Nutrition (announced in February) and Aliments Mackenzie acquired Karnivor, both in Canada. That was after Dane Creek Capital Corp. added to its portfolio of raw pet food brands in March by buying Tollden Farms. And, as this issue went to press, United Petfood announced its intent to buy Jonker Petfood of the Netherlands, the 14th deal overall in its growth strategy.

What will be the post-crisis ‘new normal’?

No doubt all these acquisitions had been in the works for some time, and the interested parties decided to proceed despite the pandemic’s effects. Activity may not continue at the same level or will be different, Jaffe said, predicting that any deals in the U.S. will focus on profitability and likely involve smaller acquisition targets and valuations, especially by private equity (PE)-backed companies with cash constraints. Large public companies may refrain from deals altogether as volatile equity prices lead company leaders to focus on conserving capital.

Longer term, PE firms will be best positioned to be the buyer of choice as debt markets become fluid, Jaffe added. “The consensus is that we may see an increase in transformational deals post-crisis driven by a need to reposition for the ‘new normal.’”

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