SDRVentures：2022上半年宠物行业并购和资本市场报告_12页_2mb

THE DEAL HOUND Summary: Pet Industry M&A and Trends in 1H22

Core Content

The pet industry continues to show robust M&A activity and growth, despite macroeconomic challenges such as inflation, rising interest rates, and regulatory uncertainty. The sector is driven by consumer behavior changes, technological advancements, and the increasing humanization of pets.

Main Trends and Insights

• Consumer Behavior:

  • The pet care industry is often seen as "recession proof" with over 70% of U.S. households owning a pet.
  • Pet owners are willing to spend on their pets, with U.S. expenditures in 2021 reaching $123 billion, including $50 billion on food and treats and nearly $10 billion on grooming, boarding, and pet health insurance.
  • The "humanization of pets" trend persists, with younger pet owners treating pets like family and transferring their own values and wants to their pets.

• Inflation and Interest Rates:

  • Rising inflation and interest rates may impact consumer discretionary spending and investor borrowing.
  • Pet food inflation is real, with prices increasing over 9%, and pet food ingredients in demand for biofuel production.
  • Pet owners may face limits in spending on ultra-premium pet food, as prices vary widely from $442 a year for mass market dry dog food to over $7,000 for raw food.

• Pet Nutrition and Supplements:

  • There is a growing interest in pet nutrition and supplements, with over 40% of pet owners purchasing higher-end pet foods.
  • Global spending on natural, healthier pet food options reached nearly $23 billion annually.
  • CBD products are becoming popular for treating inflammation, pain, seizures, and anxiety in pets, with as many as 50% of pet owners expected to use CBD oil or infused treats this year.
  • However, CBD remains unapproved by the FDA for pets and is subject to legal uncertainty due to federal marijuana laws.

• Veterinary Technology:

  • Technology is transforming veterinary care, with IT solutions streamlining operations and enhancing client relationships.
  • Cloud-based software and online medical records are reducing paperwork and increasing data security.
  • Telemedicine is becoming mainstream in pet care, allowing real-time consultations with qualified professionals.
  • Innovations like pet wearables, 3D printing, and minimally invasive surgical techniques are improving pet health outcomes.

• M&A Activity:

  • M&A activity remained high in the first half of 2022, with notable deals in the pet services and tech sectors.
  • Antelope acquired Diggin' Your Dog and Super Snouts for $1,400 million, expanding its portfolio in pet CBD and treats.
  • Clayton, Dubilier & Rice and TPG Capital acquired Covetrus for $4 billion, a 39% premium, highlighting the sector's appeal for tech integration and operational efficiency.
  • Swedencare AB acquired NaturVet for $448 million, focusing on premium pet supplements and distribution.

Key Industry Segments

• Pet Food and Treats:

  • A significant portion of M&A activity in the pet industry.
  • Companies like Nestlé and General Mills are leading in this segment with substantial market caps and growth.

• Pet Care Services:

  • Continued interest in services such as pet insurance and training.
  • Crum & Forster Pet Insurance Group was acquired by JAB Holding Company in June 2022.

• Retailers:

  • Retailers like Chewy, Petco, and Tractor Supply are key players in the pet industry, with notable market performance and growth.

• Hard Goods:

  • Companies such as Church & Dwight and The Clorox Company are part of this segment, showing varied performance in terms of market cap and growth.

• Animal Health:

  • Major players include Merck & Co., Zoetis, and Idexx Laboratories, with significant EBITDA multiples and revenue growth.

• Pet Tech:

  • Tech-driven solutions are critical for veterinary practices, with companies like Covetrus and PetDesk leading in digital platforms and IT services.

Active Buyers and Sponsors

• Strategic Buyers:

  • NVA (SAGE VETERINARY CENTERS, Old Derby ANIMAL HOSPITAL)
  • DOGS (LEARNING PAWSIBILITIES, UNLEASH THE POSSIBILITIES, ZOOMIES)

• Private Capital Sponsors:

  • Shore Capital Partners (SVP Southern Veterinary Partners, Westgate Pet & Bird Hospital, Cedarcrest Animal Hospital, Animal Medical Center of Canada)
  • KKR (PetVet Care Centers, Snider Veterinary Services PC, Animal Clinic PA, Hunter's Animal Hospital)
  • Alvarez & Marsal Capital (Worldwide, Pet Factory, Kitty Sift, Happy Kidney! Happy Life, Diggin' Your Dog, Doggo)
  • Alpine (Antelope)

Capital Market Conditions

• Market Cap Performance:

  • The pet industry's market cap performance varies, with some companies showing positive growth while others face declines.
  • The Segment Average and Segment Median provide insights into the overall market trends and valuation multiples.

• Transaction Multiples:

  • Lower middle market private equity transactions show varying EBITDA multiples based on transaction size.
  • These multiples reflect the industry's attractiveness and the need for careful valuation due to macroeconomic pressures.

Opportunities and Challenges

• Opportunities:

  • The pet industry offers opportunities for investors interested in the "humanization of pets" trend.
  • Growth in pet tech and CBD products presents potential for innovation and expansion.

• Challenges:

  • Rising inflation and interest rates may limit consumer spending and investor appetite.
  • Legal and regulatory uncertainties, particularly around CBD, require careful monitoring.

Conclusion

The pet industry remains a dynamic and attractive space for M&A and investment, driven by consumer trends and technological innovation. Despite macroeconomic headwinds, the sector's resilience and growth potential make it a key focus for both private equity and strategic buyers. Investors should remain vigilant about regulatory changes and consumer behavior shifts while leveraging the growing demand for pet health and wellness solutions.