Pet Conference | Market


Ongoing premiumisation drives M&A activity

The premium segment in particular promises great opportunities for investors in the future, stresses Thorben Wöltjen.

Thorben Wöltjen (Oaklins) will talk about the increasing trend towards mergers and acquisitions in the international pet business at this year's International Pet Conference. Below he provides a foretaste of what is to come in Budapest.

Especially against the background of the product and price transparency gained through the Internet, brands are more important today than ever. Their brand awareness and established customer base guarantee a continuous sales stream. They are of great interest to many strategic buyers and financial investors and regularly achieve high valuations. 

Even for small but fast-growing companies, buyers are prepared to pay a high single-digit, if not even a low double-digit EBITDA multiple. Global companies such as Blue Buffalo, Ainsworth Pet Nutrition and Champion Petfoods presented even higher factors. Here, the multiple is rather a breath-taking 20x EBITDA. Thus, it reaches a level that sounds like a valuation for a software or a healthcare company, but not a consumer goods firm. If possible at all, to justify such a valuation, an acquirer has to identify considerable expansion potential and significant synergies.

Highly attractive market

There is no doubt that the pet food market is highly attractive. In many regions it is developing faster than other consumer goods sectors. At the same time, it is considered to be crisis-proof and to allow achieving high margins. So, many parties try to acquire shares in a successful player and benefit from the positive, ongoing developments. The premium segment in particular promises great opportunities in the future. In recent years, it has outperformed the other segments because of an increasing number of people deciding to spend more on their pets to pamper them.

The acquisitions of Blue Buffalo, Ainsworth and Champion this year were multi-billion dollar transactions in North America. However, they are exemplary for the entire industry and can serve as a model for smaller transactions in Europe or Asia. Despite a similar valuation level, a closer look reveals differences between the transactions.

• Takeover of Blue Buffalo by General Mills in February 2018: the acquisition of Blue Buffalo at the beginning of the year was certainly a big surprise for many. In fact, the listed company generated sales of approximately 1.3 bn dollars and an EBITDA of approximately 320 mio dollars. Industry observers therefore assumed that Blue Buffalo would soon become a buyer itself, but not a target. General Mills, which has a turnover of about 16 bn dollars but no relation to the pet sector so far, has immediately achieved a leading position in the US premium segment with this single acquisition of Blue Buffalo. General Mills, which also owns the ice cream brand "Häagen-Dazs", expects huge potential in a further internationalisation of Blue Buffalo. In addition, its management believes that there are significant synergies in the areas of supply chain, R&D, marketing and sales. It is interesting to note that General Mills is already the second food company to expand into the pet food sector through a transaction worth billions. 

• Acquisition of Ainsworth Pet Nutrition by J. M. Smucker in April 2018: as early as 2015, J. M. Smucker bought into the pet industry for 5.8 bn dollars through the acquisition of Big Heart Pet Brands. In April, it increased its market share and acquired the American brand manufacturer Ainsworth Pet Nutrition, which had been under the control of financial investor L Catterton since 2014, for 1.9 bn dollars. The buying company, which is primarily known for its jams, sees an attractive market in the pet food sector. In addition, there are various links to the existing activities of Big Heart Pet Brands. Therefore, the company's management also expects to save approximately 55 mio dollars in costs in the coming three years.

• Rumoured takeover of Champion Petfoods by Nestlé in July 2018: in July, it was publicly reported that Nestlé was interested in acquiring Champion Petfoods, a Canadian manufacturer of pet food with 550 employees. The company has already been regarded as a takeover candidate several times in the past, particularly as the financial investor Bedford Capital has been involved in the company since 2009 and nine years is an unusually long period for an investment. According to the report, the Swiss are prepared to pay about two bn dollars for the company, whose brands Acana and Orijen are known throughout the world. There are undoubtedly synergies between Nestlé and Champion Petfoods at various levels, whether in purchasing, sales, marketing or future product development. However, Nestlé's management is also under considerable pressure because active investor Daniel Loeb is pushing for an optimisation of the brand and product portfolio. Due to market dynamics, the pet food division in particular should be expanded through further acquisitions. 

These three examples, which resulted in a cumulative transaction value of approx. 12 bn dollars in 2018 alone, clearly show that premium brands are enjoying enormous popularity among buyers. It can be assumed that a number of acquisitions will also take place in this segment in this year and the coming time. After a series of takeovers worth billions, however, medium-sized companies in particular are likely to become targets. 

At the same time, it seems likely that European food companies without relations to the pet food sector will also try to buy into the market through an acquisition. In addition, successful brand companies in the emerging markets of Asia and South America will increasingly arouse the interest of potential buyers, particularly due to the fast growth rates. In any case, it will be interesting to see whether the buyer will be an old acquaintance or new to the industry.  

About the author

Thorben Wöltjen is a director at Oaklins, an international leading M & A advisory firm. He heads the Oaklins Global Petcare Group. With 700 professionals in more than 40 countries, Oaklins closes more than 300 transactions a year with a total value of 15 bn euros.


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