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Animal Crossing: Owners ripe for pet-food M&A but tough market bites

Pet-food assets are becoming a succulent treat for dealmakers in EMEA. Powered by the dramatic increase in pet adoption during the Covid-19 pandemic, the high-growth sector has prompted a search for new targets.

“The sector was already growing and it was stimulated by Covid in many ways,” said Tom Whelan, private equity (PE) partner at McDermott Will & Emery, of the phenomenon. “If you think about the increasing range and variety of brand options available on the market, people are treating pets in the same way or (in some cases) even better than their own family.”

Pet-food M&A is on course to match last year’s figures with 12 deals worth a combined EUR 123m recorded in the year to date (YTD), according to Mergermarket data. By contrast, 15 deals in YTD22 grossed EUR 225m, while the full year recorded 23 deals worth EUR 259m. The sector hit its peak in 2012 with 35 deals, and was just shy of this record in both 2020 and 2021, the first two years of the pandemic.

The largest deal so far this year is the Saudi Industrial Investment Group‘s (SIIG) [TADAWUL:2250] USD 70m (EUR 63.5m) investment in Danish firm Unibio, whose technology uses methane sources such as natural gas or biogas as feedstock to naturally produce a highly concentrated protein product which can then be used as a direct supplement in animal feed and can substitute fishmeal.

Another significant deal is United Petfood, a Belgium-based pet foods producer, which announced that it is planning to buy into the Turkish manufacturer Lider Pet Food.

Market paws

Even though it is a burgeoning sector, pet food has not been immune to market headwinds.

“Quality assets are still attracting premium prices, but for bigger deals there is still not much debt availability; and where there is no pressure to sell, a lot of owners and sponsors are still holding back assets hoping for better times to sell,” Whelan said, referencing the current mismatch in seller-buyer pricing expectations and the high-interest rates environment that has affected other sectors too.

For instance, Italian pet foods producer Morando has put its search for an investor on ice as offers have not met valuation expectations, as reported. Several prospective bidders considered the proposed EUR 300m deal value too ambitious.

Raining cats and dogs

At a recent industry conference, venture capital (VC) and PE professionals were all over the sector, showing off family-owned and startup-stage pet food brands with the same pride they would have once devoted to the latest crypto venture. The pipeline is growing fast, as vendors and advisers hope for more viable market conditions.

One company to watch is Cinven's portfolio company Arcaplanet, which it wants to turn into a portfolio play for the sector. It has a score of 29, according to Mergermarket's Likely to Exit (LTE) predictive algorithm, which is helped by its hefty valuation.*

Meanwhile, Partner in Pet Food (PPF), a Hungary-based pet food manufacturer also owned by PE Cinven, could come up for sale next year. It has an LTE score of 78.

Olmix, owned by Motion Equity Partners, has an LTE score of 56, indicating that M&A opportunities could come up in the months ahead.

Pets have long been a man’s best friend. With the right market window, dealmakers will get to share some of the love.

Analytics by Jonathan Klonowski