Every issue of every pet journal brings news about acquisitions in our industry. What’s going on there? Having built and sold three businesses, two of which were in the pet industry, I saw the process from the start. From my experience as a consultant, here are some of the most frequently asked questions from retailers and manufacturers about mergers and acquisitions in the pet industry, as well as what pet owners company should think about if they plan to sell:
“I see all these businesses selling out. Why?”
Craig Lawson, investment banker and managing director of Cowen, who has represented both buyers and sellers in the pet business, said: “The pet space has been hot due to a number of factors – Cowen recently struck six deals – many of which are captured as part of the “humanization” of pets.The pet space has again proven to be recession-proof during the COVID, and several positive industry dynamics that have unfolded, such as increased adoption rates, will provide tailwinds and associated acquisition interest for years to come.
“Who are the buyers of all these pet companies?”
There are different categories of buyers. For most pet businesses making significant profits, there will be two types of buyers: private equity/financial buyers or strategic/operating company buyers.
Private equity firms raise funds from pension funds, endowments and other large investors, including high net worth individuals. The money is then placed in a fund which then acquires companies. However, the funds typically pay around 50% of the purchase price, and the remaining 50% is paid with loans or debt, debt secured by the company’s assets.
Strategic buyers are existing operating companies. Many are public companies, i.e. companies whose shares are traded on a public exchange like the New York Stock Exchange or NASDAQ, or large private, often family-owned companies that buy a business in their own domain or a related domain.
Small businesses often sell to individuals such as “angel” investors – wealthy individuals who wish to acquire a business either to operate themselves or purely as an investment. Often, small businesses must sell to individuals who cannot afford to pay the full sale price on the day of the sale. In these cases, the selling owner must “take back the paper”, which means the seller must take out a promissory note, an agreement to pay the remainder of the money to the selling owner over time. This money usually comes from the profits of the now sold business itself. This creates additional risk for the selling owner.
Venture capital is a separate financial specialization from private equity. Venture capitalists invest in companies that appear to have substantial growth prospects ahead of them. While most venture capital investments tend to occur in high tech and other industries where very rapid growth is occurring, this may apply to the pet business. In its early days, PetSmart was owned by venture capital groups. High-growth pet businesses can also seek growth capital from angel investors, individual investors who see a high growth opportunity.
“How do I know what my business is worth in a sale? »
The value of a company depends first of all on the company itself: its markets, its growth, its income and its assets, the protective barriers it has against competition, its dependence on vis-à-vis its owner, the quality of its management and all the factors that make it a successful business.
Another question to consider is: what type of buyer would be interested in the business and what type of sale is the owner interested in? If the business is relatively small, the owner may have no alternative to selling to an individual buyer. Usually the highest price for a company will come from a strategic buyer, especially a public company. However, in recent years, private equity firms have paid very high prices in the pet business, especially when the acquisition is an “add-on”, i.e. the selling company is integrated into an existing company that the private equity firm already owns.
“Frequently, business owners have inflated ideas about the value of their business and suffer great disappointment when they go to hand over their business and find that their business is worth much less than they think,” said Rob Johannigman, former pet company executive. and now President of RJJ Consultants. “That’s why we often suggest that a business owner obtain an appraisal from a licensed professional even if they are not considering a sale or transfer in the near future.”
“I am considering selling my business. What options should I explore? »
Johannigman noted that it’s important to start the process by focusing on two areas: first, what does the owner want to do with their life, and second, what is the value of the business? After spending time analyzing these two factors, a clear path may emerge, whether to improve business performance or accelerate the trajectory to a liquidity event such as a sale of the company. ‘business.
Jon Willinger was the founder and president of JW Pet Co., maker of JW dog toys, Gripsoft grooming tools and other pet products, now owned by Petmate. Previously, he was president and director of Willinger Bros., which manufactured Whisper brand aquarium products, now owned by Spectrum Brands. Willinger holds over 100 patents, covering many products found in pet stores around the world. He is also a lawyer and is currently an adjunct professor at Ramapo College in New Jersey, where he teaches entrepreneurship.