PET & ANIMAL CARE Q1 2015 - Capstone Partners | Pet... · · 2015-02-06PET & ANIMAL CARE Q1 2015...

BOSTON

CHICAGO

LONDON

LOS ANGELES

PHILADELPHIA

SAN DIEGO

SILICON VALLEY

TAMPA

Q1 2015 PET & ANIMAL CARE

CONTACTS Thomas Elliott Managing Director (813) 251-7285 [email protected] Daniel Schultz Director of Business Development (617) 619-3368 [email protected]

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.



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."



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.

- - -



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 - -



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


acquisition advisory has recapitalized with




a portfolio company of





CAPSTONE PARTNERS: COMPLETED CONSUMER PRODUCTS & SERVICES TRANSACTIONS



A Premier Provider of Early Education

& Childcare Services


Senior Members of

Doc’s Drugs, Ltd.

strategic joint venture


a portfolio company of


Tom Elliott, Managing Director

[email protected] • (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

[email protected] • (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.



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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please visit

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PET & ANIMAL CARE Q1 2015 - Capstone Partners | Pet... · · 2015-02-06PET & ANIMAL CARE Q1 2015...

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