March 2023
Recession resistant pet industry creates ample opportunities
The pet industry has evolved significantly over the past few years with multiple trends impacting the way pet product brands, manufacturers, retailers, customers and investors view the sector.The global pet care market size is expected to grow from $223 billion in 2021 to an estimated >$300 billion by 2028. The industry is known for its emotional charge that is often compared to the baby industry. In fact, tendencies are visible that spendings for pets can get alarmingly close to spendings for children. Another interesting parallel is that neither in baby care nor in pet care does the end consumer make the purchasing decision.
In 2020 stay at home regulations driven by COVID-19 led to an exponential increase in pet adoptions creating significant growth opportunities for pet companies who had the capacity to capitalize on this unexpected momentum.
Consumers drove increased demand for pet products and services as 2021 approached, and adoptions continued to accelerate. At the same time pet businesses had to deal with supply chain challenges and maintaining inventory to avoid out-of-stocks. Growth is expected to continue in the coming years. Pet owners have increasingly humanized pets, opting to pay higher prices for more attentive veterinary services, quality goods, and healthy foods and treats. Thus, the increasing popularity of pets as family members results in the growing demand for premium pet food and products, the boom in e-commerce sales, and the expansion of the pet care services market. As consumers are demanding more products as well as higher-quality products and services for their pets, and companies are looking for ways to differentiate themselves from their competitors, M&A can be a way to accomplish that. The pet industry is becoming more consolidated in many subsectors, such as veterinary services. This assessment is supported by both financial and strategic buyers participating in M&A transactions. A lot of small players are getting bought up by bigger players, and that trend is likely to continue. This consolidation is making the industry more competitive, which in turn is leading to more M&A deals. It is a fact that consumable product companies with high repeat purchase rates continue to attract higher valuations than companies selling durable goods. Privately owned businesses with brand strength, category leadership, and effective direct-to- consumer capabilities are poised for strong buyer interest, with opportunities for premium multiples. Businesses under private ownership that capitalize on online purchasing habits of pet parents are likely to attract acquirer interest and premium valuations.
In 2022 we saw 41 mergers and acquisitions in the pet food industry alone. Mars Petcare, the largest pet food company in the world, acquired Champion Petfoods, a Canada-based maker of the Acana and Orijen premium pet food. Also Nom Nom, a direct-to-consumer fresh pet food company, will become part of Mars Petcare. M&A activity is also seen in innovative segments such as Tenecious Labs a pioneering international consumer products group championing emerging plant-based ingredients, including CBD, acquired Rover’s Wellness, a company that creates organically grown, true broad spectrum hemp oil products for pets.
The evolution in the innovation process is also clearly driving M&A activity. In the past R&D activities happened in-house. Today innovation happens largely by acquiring emerging brands as purchasing a successful start-up or a successful small/medium size company proves to be more efficient than developing an own brand which has the risk to fail. The pet industry proved itself to be pretty much recession resistant and continued to grow amid various supply chain challenges and shifting consumer purchasing trends. Established pet industry players are recognizing the value in diversifying their portfolios through mergers and acquisitions and private equity firms are eager to mark their territory in this lucrative market.
The increasing industry growth and continuous acquisitions have created market opportunities for smaller players to consolidate. Larger established players on the other hand are enabled to collaborate or partner with investors. Acquirers can position themselves to monetize business trends and diversify their portfolios through mergers and acquisition. The boom in M&A will probably result in even more innovation and variety in the pet products and services that are available to pet owners and consumers. As experienced professionals in the industry we are sure to see even more M&A deals in the years ahead. Our clients benefit from our expertise for progress and profit in the phenomenal pet care industry. Contact us to explore your ample opportunities for progress and profit!