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Pet food M&A deals increase more than 75% in 2021

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At least 44 pet food-related merger and acquisition (M&A) deals have happened globally in 2021 as of this writing. Compared to about 25 in 2020, that’s quite a jump, more than 75%, signifying the ongoing strength of the pet food market despite continued economic uncertainty and supply chain disruptions wrought by the pandemic.

The most recent pet food activity includes large companies—J.M. Smucker selling its private label dry food business to Diamond Pet Foods, United Petfood buying Teeling Petfood—and smaller ones, including a private equity (PE) firm acquiring Pet Ventures/Pet n’ Shape, Antelope buying Bocce Bakery and, most recently, Inspired Pet Nutrition acquiring Pet Food UK, also via PE funding.

There have also been numerous deals on the pet food supplier side, including recent ones like DSM buying Vestkorn, 3D Corporate Solutions acquiring LinkOne and Transcontinental acquiring H.S. Crocker.

Pet food M&A still driven by PE, focus on core business

2021 started off strong for pet food M&A when several transactions were announced in just the first few days of the year. By May 2021, 15 deals had occurred, many of them involving PE, a trend that has continued.

Bryan Jaffe, managing director of Cascadia Capital, an investment firm focusing on the pet industry, had predicted the heavy PE involvement in mid-2020 because of economic instability causing larger pet food players to be skittish about M&A or needing to focus on their current businesses. That was still playing out this year, according to Jaffe.

“Many of the large consumable players are tied to even bigger food franchises that are commanding management’s continued attention and corporate resources, siphoning off both focus and capital from investing and M&A activities within their pet portfolio,” he wrote in a report, “Pet Industry Overview: Spring 2021.”

In fall 2020, Jaffe had commented on large conglomerates “addressing underperformance in their other franchises, with some engaging in divestitures to reshape their portfolios going forward.” That is exactly the path that J.M. Smucker, the third largest pet food company globally (at least through 2020), has followed over the past 12 months.

First, in December 2020, Smucker sold its superpremium specialty pet food brand, Natural Balance, to private equity. Then the recent December 2021 deal to divest its private label business on the dry side.

“This divestiture enables us to focus investments and resources on areas of our pet food and pet snacks business positioned for growth and profitability, including driving category growth in dog snacks, building upon our momentum in cat food—particularly with Meow Mix, and stabilizing Nutrish dog food by growing consumer demand,” said Rob Ferguson, senior vice president and general manager of pet food and pet snacks for Smucker, in a press release.

At the time of the Natural Balance sale, Mark Smucker, president and CEO of the company, made essentially the same remarks.

More pet food M&A to come in 2022

It may be too soon to peer into the crystal ball for 2022 in terms of pet food M&A activity, but the high level seems likely to continue. The 44 pet food deals were just part of a record number for the overall pet industry; as of fall 2021, in his latest report, Jaffe projected that final tally to top 100 by the end of the year, and I believe that’s in the U.S. alone.

More importantly, it appears the reasons Jaffe gave for the record in pet care M&A volume will linger for a while: Business owners’ tolerance for risk has changed, thanks to the shock COVID-19 delivered to the global economy; anticipated changes to tax structures in the U.S., including probable higher federal rates on capital gains, have spurred a “rush to the exits”; conversely, the pandemic has also resulted in strong sales and profitability for many pet businesses, and PE owners are cashing in; and significant PE ownership started about five years ago, and “many of those deals are now being recycled,” according to Jaffe.

In other words, strap in; we may be in for another wild ride in 2022.

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