Despite challenging environments to the consumer in the past few years, the pet industry continues to perform at or above expectations. U.S. pet industry spending has grown at a 4.7 % compounded annual growth rate since 2005, reaching an estimated $47.7 billion in 2010 compared to $45.5 billion in 2009.
According to Franchise Direct, based on data from the previous 16 years, estimated expenditures in the U.S. pet industry will grow to $62.36 billion in 2015. Furthermore, Packaged Facts is projecting the U.S. pet market will grow at a 7.1% compound annual rate from 2008 to 2013, up from 6.4% in the previous five-year period.

Looking at the performance of core publicly traded pet companies, the pet market seems to reflect strong resistance to the macro-economic factors that have affected the rest of the broader market. Examples include Central Garden & Pet Company, MWI Veterinary Supply, and PetSmart, Inc., among others.

Merger and acquisition activity has risen relative to activity seen in 2008 and 2009. Notably, through September 2010, there have been 15 M&A transactions announced involving U.S. targets: nine in pet products manufacturing and four in pet products retail. This improvement can be attributed to the general improvement in M&A markets and the overall increased appeal in the pet sector.

Trends in Pet Industry M&A

With the Proctor & Gamble / Natura deal, other major industry players may look to acquire and expand their portfolios to include ultra-premium and natural pet food properties to bolster their competitiveness and market share against Natura.

The pet industry is undergoing a wave of consolidation across core market segments. However the industry lacks pure play public buyers given the size of the industry domestically. The majority of public pet companies tapped the market in the mid-1990s, with PetMed Express, Inc. being the last in March 2000. That being said, with the current turn of the overall economy, more private companies will find going public appealing.

With more than $400 billion in un-invested capital in the hands of institutional investors, transaction velocity will undoubtedly pick up. Specifically, the capital markets and M&A transactions in the pet industry look primed to grow as owners seek liquidity and brands seek to capitalize on available market opportunity in 2011.

Please contact me at 312-283-8444 or bcurtis@allcapcorp.com for more information on opportunities in the pet sector.