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BOSTON
CHICAGO
LONDON
LOS ANGELES
PHILADELPHIA
SAN DIEGO
SILICON VALLEY
TAMPA
Q1 2015 PET & ANIMAL CARE
CONTACTS Thomas Elliott Managing Director (813) 251-7285 telliott@capstonellc.com Daniel Schultz Director of Business Development (617) 619-3368 dschultz@capstonellc.com
MERGER & ACQUISITION ACTIVITY: 2014 YEAR IN REVIEW
Merger and acquisition activity in the pet & animal care industry continued its upward climb in
2014, with 47 transactions involving U.S. targets reported for the year, a new record for the
sector. While several notable deals were recorded, including the $8.7 billion take-private
acquisition of PetSmart, the majority of industry transactions occurred in the middle market.
Acquisitions were supported by expanding industry sales and profits, a growing economy, a
corresponding increase in consumer spending and consumers who continue to spend heavily on
products and services for their pets.
For the twelve months ending December 2014, the most active sectors in the industry were pet products manufacturing, followed by pet products retail & distribution. The variety of sellers is an indication of the attractiveness of the space as a whole to investors, who are drawn by the fragmented nature of the industry and the resulting ability to add-on complementary products and proven brands.
15
39 37
40 43
47
0
5
10
15
20
25
30
35
40
45
50
2009 2010 2011 2012 2013 2014
Pet and Animal Care Transactions
Pet Products Retail &
Distributing 23%
Pet Products Manufacturing
41% Animal Hospitals
4%
Animal Health Services
2%
Animal Health Manufacturing
13%
Media & Other 13%
Transactions by Industry Segment
Sources: Capstone Partners LLC research and Capital IQ Twelve months ending December 31, 2014
Sources: Capstone Partners LLC research and Capital IQ
In fact, the M&A cycle
appears to be entering its
“boom” phase, during
which activity – and
valuation premiums –
typically rise sharply. The
result is a very attractive
seller’s market..
Capstone Partners LLC 2
Pet & Animal Care Q1 2015
2015 OUTLOOK
M&A activity in the pet & animal care industry is off to a strong start in 2015, with
seven transactions already reported through late-January. Capstone expects robust
activity to persist in the near-term, with middle market deals driven by eager, well-
capitalized buyers backed by a growing economy. While a potential interest rate hike
in 2015 could put a damper on deal activity and drive down valuations, or a market
correction could impede momentum, we expect that 2015 will yield opportunities for
privately held middle market companies. In fact, the M&A cycle appears to be
entering its “boom” phase, during which activity – and valuation premiums – typically
rise sharply. The result is a very attractive seller’s market.
The pet & animal care industry has consistently grown year over year, even during
challenging economic times, and as a result buyers and investors are attracted to the
resiliency and growth of the sector. Although the number of pet-related transactions
has been increasing for several years now, demand is still outpacing the supply of
viable targets, which has in-turn bolstered purchase price multiples. Near the top of
the range are valuations for consumable pet products businesses, with Ebitda
(earnings before interest, taxes, depreciation and amortization) multiples reportedly
averaging in the double-digits. Businesses that operate in the high growth, high
margin animal health products and services segment can also command premium
multiples. Companies that produce hardlines, such as pet toys and other durable
products, tend to command multiples of about seven to eight times Ebitda. Such
strong multiples are a vote of confidence for an industry which enjoys stable cash
flows and a devoted consumer base.
M&A TRENDS
A variety of acquisitions are occurring in the industry, with buyers targeting
everything from small, single-product companies or individual brands to large
corporations with a full stable of products and brand names. Acquisitions of all sizes
provide a way for buyers to gain market share and bolster growth. While large
targets enjoy advantages in economies of scale and strong brand recognition, smaller
targets can provide buyers with specialized or unique products. Several underlying
themes are apparent in the list of 2014 transactions, including buyers’ strong interest
in pet food producers, pet care companies and natural products. There also
continues to be strong activity for both pet products retailers/ e-tailers, and for pet
boarding companies. Meanwhile, the roll-up of pet products distributors continues.
Both corporate and private equity buyers have been very active in the industry, with
corporate buyers looking to expand their product and service offerings and/or
geographic footprints. The sector is highly fragmented and a number of companies
have yet to reach a scale that makes them viable as a platform or standalone
acquisition. However, even such smaller businesses are finding receptive buyers
looking for add-on or tuck-in acquisitions. These include private equity buyers
performing roll-ups of multiple targets that combined have greater scope, scale and
improved standing in this highly competitive industry. In fact, private equity buyers
have been acutely interested in the industry, attracted to the sector’s long-term
growth opportunities, as well as the chance to play an important role in supporting a
company’s expansion efforts during periods of rapid growth and scale-building.
The animal-health market
is currently valued at $22
billion and boasts a
growth rate of 5.7%
annually since 2011.
Capstone Partners LLC 3
Pet & Animal Care Q1 2015
SELECTED TRANSACTION BRIEFS
There have been several notable transactions in the pet & animal care industry in
recent months. Selected transactions are outlined below, followed by a more
comprehensive list on the following pages.
AmerisourceBergen to acquire MWI Veterinary Supply (January 2015) – Drug
wholesaler AmerisourceBergen Corporation (NYSE:ABC) agreed to acquire MWI
Veterinary Supply, Inc. (NasdaqGS:MWIV), the nation’s biggest distributor of animal-
health supplies, in a $2.5 billion deal, as the wholesaler looks to extend its reach into
the fast-growing animal-health market. The purchase price represents a 0.8x
multiple on revenue and a very attractive 19x Ebitda multiple. MWI Veterinary
Supply distributes animal health products to veterinarians in the United States and
the United Kingdom. AmerisourceBergen’s decision to enter into the animal-health
business was based on the fact that the market is currently valued at $22 billion and
boasts a growth rate of 5.7% annually since 2011. The industry has been in the
spotlight lately, with Eli Lilly acquiring the animal-health business of Novartis AG for
$5.4 billion, while activist investor Bill Ackman took an 8.5% stake in animal-health
leader Zoetis Inc. With very low generic competition in the animal-health market and
fewer difficulties with insurers, AmerisourceBergen is optimistic of its ability to
capitalize upon the market opportunities, with its CEO noting that “Animal health is a
growing market in the U.S. and internationally, and is a logical extension of our
pharmaceutical distribution and services businesses.”
BC Partners leads acquisition of PetSmart (December 2014) – In the largest
announced U.S. private equity buyout of the year, a consortium led by BC Partners
has agreed to take PetSmart (NASDAQ: PETM) private for $83 per share, valuing the
company at approximately $8.7 billion. The transaction represents a nearly 39%
premium over PetSmart's prior closing share price. The deal also represents a 9.1x
multiple of PetSmart's adjusted Ebitda for the 12 months that ended November 2.
Employing roughly 54,000 associates and operating nearly 1,400 stores, the company
offers products and services that include pet food, dog training and pet grooming, as
well as in-store day care and adoption services. BC Partners has said it looks forward
"to working with management to continue growing PetSmart's business and
executing against its recently announced strategic initiatives."
Animal Supply Company makes two acquisitions (December 2014) – Animal Supply
Company, the national leader in pet food and supplies distribution, announced the
acquisition of Kernco Corporation, headquartered in Tucson, AZ. "We are excited to
add Kernco's customer relationships and brands to ASC," said George Ristevski, CEO
of Animal Supply Company. "Kernco's strong position in the market place will
complete Animal Supply's ability to service all retailers across the Southwest.“
Weeks earlier the company acquired Green Leaf Distributors, doing business as
PETNET, a supplier of dog and cat foods as well as cat litter, in a move that expanded
Animal Supply’s footprint in the Northeast. The transactions mark the continued roll-
up of the pet products distribution sector, which includes the recent acquisition of
Wolverton by Phillips Pet Food & Supplies, as well as the purchase of Phillips by
private equity firm Thomas H. Lee Partners.
“We've found a well-
aligned partner who will
enable us to further
accelerate our growth
through marketing and
innovation investments."
Capstone Partners LLC 4
Pet & Animal Care Q1 2015
SELECTED TRANSACTION BRIEFS (Continued)
Two Sizable E-tailer Transactions – U.S. Petco is acquiring e-retailer Drs. Foster &
Smith, which generated estimated web sales of $205 million in 2013 and had been
looking for an acquirer to “take the company to the next level.” The deal will give
Drs. Foster & Smith a national partner. The purchase price was not disclosed. The
acquisition by Petco, which generated estimated web sales of $76.9 million in 2013,
is expected to close in early 2015. Drs. Foster & Smith will continue to operate as a
stand-alone brand along with its various e-commerce sites, and the founding
veterinarian owners are expected to remain after the deal closes. The acquisition
will complement Petco's existing capabilities in pet health to include prescription
services such as prescription diets, preventive care and a broad base of products
created by licensed veterinarians. Drs. Foster & Smith has been a direct marketer of
pet supplies, medicine and related products since 1983. The company has been
selling online since 1996.
The acquisition of Drs. Foster & Smith by Petco is the second major deal in 2014
involving a big chain and e-commerce company in the pet supplies retailing business.
In September PetSmart purchased Pet360 for $130 million with the possibility of
additional performance-based payments totaling up to $30 million by the end of
2016. The Pet360 network is composed of nine pet supplies e-commerce sites.
Nature’s Variety purchased by Agrolimen SA (July 2014) – Agrolimen S.A. acquired a
50% stake in Nature's Variety from private equity group Catterton Partners. Nature’s
Variety will continue to be headquartered in St. Louis and will keep operating as an
independent company. With 410 employees and more than $100 million in annual
revenue, Nature's Variety operates as a natural pet food company providing raw
frozen diets, grain-free kibble and cans, prairie kibble and cans, grain-free biscuits, ice
cream treats, raw frozen bones and slow roasted treats for cats and dogs. The
company offers its products through pet specialty stores and veterinarians in the
United States and Canada, as well as online. "In Agrolimen, we've found a well-
aligned partner who will enable us to further accelerate our growth through
marketing and innovation investments," said Nature's Variety CEO Reed Howlett.
Agrolimen SA produces and supplies pet food. The company was founded in 1937
and is based in Barcelona, Spain.
Frontenac Company acquires Cloud Star Corporation (July 2014) – Frontenac, a
leading private equity firm, completed a majority recapitalization of Cloud Star
Corporation. The transaction will serve to support the growth plans of Cloud Star, a
producer of natural and wholesome pet products specializing in treats and
shampoos. Frontenac is focused on investing in lower middle market, family held or
owner operated businesses. Exemplifying the interest of private equity in the pet
sector, five of the six initial indications of interest in the company reportedly came
from private equity firms, and included premium multiples. “We were seeking a
partner to help take our business to the next level, both financially and strategically,
and we are very happy to announce our new partnership with Frontenac,” said Cloud
Star founders Jennifer Melton and Brennan Johnson. Frontenac plans to expand
Cloud Star through product innovation and select acquisitions, said Walter Florence,
a Frontenac managing partner.
SELECT M&A TRANSACTIONS
Enterprise EV / LTM
Date Target Acquiror Target Business Description Value (mm) Revenue EBITDA
01/23/15 RDB Investments Pet Valu Doing business as Jack's Pets, operates a chain of pet stores. - - -
01/22/15 DogTime Media Evolve Media Operates a community of pet related Websites. - - -
01/20/15 Salix United Pet Group Manufactures pet food and rawhide dog chew products. - - -
01/19/15 Manna Pro Products
Broad Sky Partners Produces a variety of animal feeds and companion animal products.
- - -
01/13/15 Bionic Pet Products Outward Hound Manufactures rubber dog toys. - - -
01/06/15 PetVet Care Centers
Teachers' Private Capital
Operates veterinary hospitals and general practice veterinary clinics.
- - -
01/12/15 MWI Veterinary Supply
AmerisourceBergen Corporation
Distributes animal health products to veterinarians in the United States and the United Kingdom.
$2,531.3 0.8x 19.0x
12/31/14 Three Pups FETCH! Pet Care Owns and operates twelve Fetch! pet care franchise locations.
- - -
12/15/14 Kernco Corporation Animal Supply Company
Distributes pet foods and supplies.
12/08/14 Green Leaf Distributors
Animal Supply Company
Doing business as PETNET, supplies dog and cat foods as well as cat litter.
12/03/14 PawsPlus Community Veterinary Clinics
Provides treatment, care and vaccinations for canine and feline companion animals.
12/14/14 PetSmart BC Partners and Other Investors
Operates as a specialty retailer of products and services for pets in the United States, Puerto Rico and Canada.
$8,756.4 1.3x 9.0x
11/19/14 Drs. Foster & Smith PETCO Animal Supplies
Sells at-home pet healthcare supplies, serving customers online, through stores and via catalog sales.
- - -
10/27/14 Eli Lilly and Company, Veterinary Products
Virbac SA Manufactures parasiticides for dogs. $410.0 - -
09/17/14 Pet360 PetSmart Operates as an online retailer of pet food, medications and supplies.
$160.0 - -
09/16/14 Pedigree Perfection International
Ultra Paws Manufactures pet garments; based in Lauderhill, Florida with a manufacturing facility in Montreal, Canada.
- - -
09/09/14 Dogs Unleashed Revue Holding Company
Publishes and markets a lifestyle magazine for dog lovers. - - -
09/08/14 National Veterinary Associates
Ares Private Equity Group
Owns and operates various veterinary hospitals for pets in the United States.
- - -
09/03/14 Best Friends Pet Care Belvoir Investments Corporation
Provides pet care services in the U.S. including boarding, day camp, dog training, grooming and veterinary services.
- - -
08/28/14 Pine Cone Pet Hospital
Individual Invetsor Provides veterinary medical, surgical, diagnostic, dental care, preventive health care and dermatologic services.
- - -
08/22/14 PetQRtag.com Pet Hub Operates an internet platform which helps users in returning lost pets to owners.
- - -
08/20/14 The FamilyPet Network GreaterGood.com Operates a network of Websites to assist pet owners in North America.
- - -
08/07/14 Sleepover Rover A Place for Rover Offers dog boarding solutions in pet sitting host homes in the West and Southwest regions..
- - -
08/05/14 Canna-Pet Peak Biopharma Produces and sells cannabinoid therapy medicine for pets. - - -
08/04/14 Pet Services Holdings, Certain Assets
Petco Support Services
Includes veterinary hospitals and annual vaccination clinics. - - -
07/28/14 PetPeople Rosser Capital Partners
Operates as a specialty retail pet supply store that focuses on high quality, natural pet food.
- - -
07/18/14 Nature's Variety Agrolimen SA Operates as a natural pet food producer, selling through pet specialty stores and veterinarians, as well as online.
- - -
Capstone Partners LLC 5
Pet & Animal Care Q1 2015
SELECT M&A TRANSACTIONS (Continued)
Enterprise EV / LTM
Date Target Acquiror Target Business Description Value (mm) Revenue EBITDA
7/18/14 Pet Buddies NorthStar Investors Offers a unique, high-quality line of pet toys and grooming products for dogs and cats.
- - -
7/15/14 Cloud Star Corporation
Frontenac Company Produces natural pet products, including treats, grooming products and “Wag More Bark Less” merchandise.
- - -
06/20/14 Vettec Kerr Corporation Manufactures and distributes hoof care products for horses. - - -
06/14/14 Lightcollar Individual Investor Operates as a developer, marketer and retailer of illuminated pet collar pendants in the U.S. and Canada.
$0.5 - -
06/30/14 Cat-Sip Real Milk Treats for Pets
PetAg Develops and manufactures milk treats for pets. - - -
05/30/14 C.J. Foods J.H. Whitney Capital Partners
Contract manufacturer of super-premium dry pet foods for dogs, cats and other household pets.
- - -
05/22/14 SmartPak Equine Oak Hill Capital; Henry Schein Animal Health
Operates as an online retailer of horse supplies and equine supplements and cat & dog food and supplements.
- - -
05/20/14 PSPC Dechra Pharmaceuticals
Develops and distributes pet supplements to the veterinary profession in the United States.
$10.0 2.2x -
04/22/14 Novartis Animal Health
Elanco Animal Health (Eli Lilly)
Develops and markets products to prevent and treat diseases in pets, farm animals and farmed fish.
$5,400.0 4.3x -
04/14/14 Certain Assets of Ultimate Pet Products
G That's Awesome Brands
Certain assets of Ultimate Cat Litter and Ultimate Kitty Litter animal litter odor control products.
- - -
04/09/14 Iams, Eukanuba and Natura brands
Mars Operate as significant brands of Procter & Gamble’s pet food business.
$2,900.0 - -
03/26/14 Scotts Miracle-Gro Wild Bird Food
Global Harvest Foods Offers a bird food product line including bird seeds and blends.
- - -
03/26/14 Three Dog Bakery Private Investor Operates retail bakeries that specialize in baking fresh dog food and treats.
- - -
03/24/14 PetVivo Technologies Scan Corp
Focuses on the licensing and commercialization of innovative medical devices for pets or pet therapeutics.
- - -
03/17/14 Certain Assets of M2 Corporation
Ethical Products Manufactures grooming brushes and feeding bowls. - - -
03/11/14 Get Pets Home.com PetHub Manufactures a QR code pet-finding tag that attaches to a pet’s collar.
- - -
03/07/14 American By-Products
Wilbur-Ellis Company Processes and markets protein meals for pets. - - -
02/24/14 EcoTech Marine Aqua Illumination Manufactures pumps, lighting and other aquarium products.
- - -
02/21/14 Wolverton Phillips Pet Food & Supplies
Wholesales pet and veterinary supplies to pet stores, chain stores, mass merchandisers, vets and pet clinics.
- - -
02/17/14 J&J Dog Supplies Ray Allen Manufacturing
Manufactures and distributes professional canine training products and dog-training equipment.
- - -
02/12/14 Cutter’s Mill Concord Pet Food & Supplies
A chain of retail stores offering natural, organic and holistic foods for dogs, cats, companion birds and small animals.
- - -
02/12/14 Bio-Medical Services ALK-Abelló Provides allergy testing and treatment solutions for pets in the United States and internationally.
- - -
02/10/14 Pet Carousel Cargill Produces branded and private label pet treats and chews. - - -
01/15/14 Phillips Pet Food & Supplies
Thomas H. Lee Partners
Operates as a distributor of pet foods & products to pet stores, feed stores, groomers and vets in the US.
- - -
01/15/14 Zuke’s Nestlé Purina PetCare Company
Produces natural and organic pet treats and chews. - - -
01/07/14 Allied Precision Industries
Miller Manufacturing Company
Manufactures pet care, wild bird care and agricultural products.
- - -
01/02/14 Liquid Fence United Industries Corporation
Manufactures natural animal repellents for use in gardens and on horses.
$35.8 - -
Capstone Partners LLC 6
Pet & Animal Care Q1 2015
LTM = last twelve months; EV = enterprise value;
Sources: Capstone Partners LLC research; Capital IQ; public filings and press releases
Capstone Partners has completed several transactions within the consumer products & services space. These
transactions span the major categories of manufacturing, retail, wholesale and services and include a variety of
companies offering a diversity of products such as those related to pet, juvenile, food, drug and neutraceutical, and
recreation products and services. Capstone’s experience in the sector provides us with insight into the valuable attributes
and likely valuation of a target company, the active buyers in the industry and the nuances of transactions in this space.
has divested
has been acquired by
has been acquired by
acquisition advisory has recapitalized with
has been acquired by
has been acquired by
has been acquired by
a portfolio company of
has been acquired by
has been acquired by
has been acquired by
Capstone Partners LLC 7
CAPSTONE PARTNERS: COMPLETED CONSUMER PRODUCTS & SERVICES TRANSACTIONS
has been acquired by
has been acquired by
A Premier Provider of Early Education
& Childcare Services
has been acquired by
Senior Members of
Doc’s Drugs, Ltd.
strategic joint venture
has been acquired by
a portfolio company of
Pet & Animal Care Q1 2015
Tom Elliott, Managing Director
telliott@capstonellc.com • (813) 251-7285
Tom Elliott is responsible for managing the firm's investment banking activities in the
Southeastern United States. Tom joined Capstone's leadership team through the
merger of the firm he founded, EQV Capital Group, Inc., a middle market M&A
boutique headquartered in Tampa, Florida. While operating EQV, Tom focused on
providing middle market business owners with sophisticated financial and strategic
advisory services in the areas of exit planning, valuations, recapitalizations and
merger & acquisition transactions.
Prior to founding EQV, Mr. Elliott spent 12 years with the Southeast Regional office of
Citigroup Capital Strategies. Prior to Citigroup, he worked as a Corporate Finance
consultant, responsible for assisting private companies with capital raising activities
ranging from venture capital funding to initial public offerings. Tom also spent four
years working as a CPA for Ernst & Young.
Tom has worked with clients across a variety of industries, including consumer
products, manufacturing, distribution, service and technology businesses. While his
transaction expertise is broad, Tom specializes in maximizing shareholder value in
private company sales and recapitalizations. He earned his MBA from the University
of Michigan and a BBA in Accounting from the University of Notre Dame.
Daniel Schultz, Director of Business Development
dschultz@capstonellc.com • (617) 619-3368
Dan oversees Capstone’s national business development and industry coverage
activities, working closely with current and prospective clients of the firm on matters
related to corporate sales, recapitalizations, mergers & acquisitions and growth
financings. In his role, Dan is able to deliver specific market intelligence to clients
regarding M&A, financing, strategic, industry and competitive trends.
Prior to spearheading the firm’s business development and market initiatives, he was
a Vice President in Capstone’s M&A group, managing numerous successful
transactions across a variety of industries. Dan also gained hands-on transaction
experience as an investment banker at Headwaters MB. He started his career with
Ernst & Young’s National Professional AABS practice in New York and later worked in
Assurance and Advisory Business Services in the Denver office. Dan received a BE in
Biomedical Engineering with a Business Minor from Vanderbilt University. He earned
an MBA and a Master of Accountancy from the Daniels College of Business at the
University of Denver.
Capstone Partners LLC 8
Pet & Animal Care Q1 2015
THE PET & ANIMAL CARE TEAM
ABOUT CAPSTONE PARTNERS
Capstone Partners LLC is a premier investment banking firm dedicated to serving
the corporate finance needs of middle market business owners, investors and
creditors. The firm provides corporate sale & divestiture, merger & acquisition,
private placement, corporate restructuring, valuation and financial advisory
services. Capstone maintains various industry specialties including one in the Pet
& Animal Care sector. The firm also has a merchant banking capability to actively
co-invest in transactions. Headquartered in Boston, Capstone has offices in
Chicago, London, Los Angeles, Philadelphia, San Diego, Silicon Valley and Tampa.
© 2015 Capstone Partners LLC. All rights reserved.
World Class Wall Street Expertise. Built for the Middle Market.
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