Is the M&A market heating up for petfood?
A couple months ago, it was Procter & Gamble announcing it's acquiring Natura Pet Products. (See what your fellow Petfood-Connection.com members had to say about that.)
Around that same time, an investment group in Canada announced it's buying Petra Pet Inc., parent company of pet treat manufacturer Beefeaters.
Now comes word that a global equity firm, the Riverside Co., is buying one of the only two petfood companies in Turkey. Tropikal petfood was founded in 1999 as a distributor for international brands such as Sport Mix, Pro Pac and Beaphar. It began making its own dry petfood in 2005, becoming the first domestic petfood producer in Turkey, it says, with brands Goody, Champion, JFD and JFC. The latter two are new lines.
With its new brands and an annual capacity of 7,500 tons--and being based in a rapidly developing market for petfood--one can see why a company like Tropikal would be attractive to investors. Or really, why any petfood or pet care company would be attractive, given how well the pet industry has ridden out the economic storm.
Does this mean the mergers and aqcuisition (M&A) market is heating up for petfood? What other mergers or acquisitions do you expect to see this year?
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Replies to This Discussion
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Permalink Reply by Melody McKinnon on -
It's the perfect and natural time for this to happen, in my opinion. While the pet food industry hasn't been slammed by the recession, it was still impacted by it. Recessions weed out weaker companies and/or pave the way to mergers & acquisitions. Prices often drop - you may pay a whole lot less for a company this year than you would have five years ago. The stronger pet food (and other) companies are now more confident in the industry as well, so they're starting to spend again.
I think you'll hear more about Canada too, as our economy has proven to be more solid than previously believed, and our dollar is strengthening. Consumers are also demanding ingredients that are made in North America, which boosts the demand for North American seafood - Canada is surrounded by oceans. It's no longer a matter of just being made in North America, consumers learned from the recalls that where ingredients are sourced from is important. Recent natural disasters will amplify the demand, at least temporarily.
Of course, there's also the shift towards natural products. It's often more practical for companies to buy up specialty brands rather than build their own brand and compete against it. I think that alone will inspire more M & A activity.
Overall, the petfood industry has really proven itself through this recession, and that has sparked keen interest in it. It's viewed as one of the safer investments as investors gear up to do some cautious spending. I think we'll see a lot of action in the next few years.
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Permalink Reply by Brett Sher on -
I work at a pet food manufacturing facility, privately held and we get phone calls and letters all the time for an investment group to buy us out.
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Permalink Reply by marcel blok on -
As people earlier reacted, the perceived increase of M&A activity in the petfood arena is a natural evolution. The going has been good for a great many years and the sky seemed the limit. Until suddenly that sky fell upon us and we were facing reality again. The claim that the petfood industry is a recession-proof one is in my opinion beside the truth, at least in some parts of the world. Markets may have grown, even the value of markets may have grown but mostly at the expense of margin and profitability. Companies may therefore become an easier prey for take-over.
But there is another influencing factor: the divide between big and small becomes such that keeping up with the big operators becomes virtually undoable for the smaller ones. So the owners of these smaller operations need to make a choice between investing in new technologies with a questionable return or sell the company to the highest bidder and cash before it's too late.
Strategic alliances with peers based upon a combination of strengths doesn't seem to be part of the mindset of these owners, whereas I maintain that this is the most viable strategy for survival besides of course selling the company.
I know of some 7 pet food companies in Europe that are for sale. A few are so big that they will attract the attention of financial investors (and can subsequently be burdened with an irresponsible increase of the liabilities on their balance-sheet), whereas others have the size to be taken over by industrial investors that have more an industrial strategy than purely a financial one.
Will we see an increased M&A activity? I have no doubt about that, but the focus will be on the pearls that can grow further (synergies are not of key importance) and on big when a sizeable and powerful market-position drives the strategy. When is this going to happen? Any day soon!
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Permalink Reply by Gelar on
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