Last year was relatively slow for pet food acquisitions, especially compared to 51 business deals in 2018. Nevertheless, opportunities may exist in 2024 for private equity groups, banks and other investors to bet on pet. Investment bank Harris Williams compiled a report detailing several traits investors look for in pet food companies.
Social and environmental ethics
Earth’s surface temperature in 2023 was the warmest in recorded history, according to NASA scientists, beating the baseline period (1951-1980) by 2.1 degrees Fahrenheit. Every month from June through December set a global record for that month, with July being the hottest month ever measured worldwide. As the reality of climate change sets in, environmental sustainability has become a crucial aspect of every business, not least because consumers demand it.
The pet food industry too must prioritize the long-term stability of Earth’s ecosystems, and investors look at companies’ environmental policies. Relatedly, pet owners have become more aware of social injustices and scrutinize supply chains to ensure the products they spend money on aren’t made with slave labor or other exploitive practices.
“These topics will become more important to pet parents and hold a greater influence on their buying behavior, and leading pet food companies are taking notice,” Harris Williams analysts wrote.
Innovative pet food formulations and marketing
Many brands fill supermarket pet food aisles and online retailers’ pages. Standing out challenges dog, cat and other pet food companies in this crowded market. Innovation is
“From unique ingredient functionality and appealing pet food formats to tech-enabled customer service and intuitive user experiences, there’s a wide host of ways for pet food companies to differentiate within their niche,” Ryan Budlong, Harris Williams consumer group managing director, wrote in the report.
While many pet food start-ups originated in people’s home kitchens and started selling locally and online, investors may look for brands that have gone global.
“The best pet food businesses have large white space for growth because of access to large markets like the U.S. or multiple European and Asian markets,” Daniel Wang, Harris Williams managing director and head of Asia-Pacific coverage, wrote.
Harris Williams analysts consider the pet food industry to be a highly resilient and attractive sector with expanding M&A activity. They believe the industry provides multiple opportunities for investors to create long-term growth, value and differentiation.