Due to the ubiquitous status of pets in North America, it is likely that most would expect the industry built around pets to be quite a profitable space for business. The level of success this industry has shown over the past several years, however, might still come as a surprise. Since the early 2010s, a surge of M&A activity has taken place in the pet industry, involving a sizable number of deals each year. 2016 was no different, witnessing around 50 transactions completed by Q4, which is especially impressive considering that the industry is relatively fragmented. While most agree that the surge is fueled by the rise of "natural" pet products and emerging "pet tech", some believe that the recent fervour is soon to give way to dog days in the industry.
Developments in the industry
What is the driving force behind the increased level of transactions? Many speculate that the trend towards "humanizing" pets and the resulting increase in consumer spending is at least partly to blame. More than ever, Canadians and Americans view their pets as part of their families. As such, they are becoming more willing to pay a premium for products and services that they perceive as more beneficial for their pets, such as "natural" health treatments and food and treats produced without grains. A rapidly developing area of the industry is "pet tech" (wearable cameras, GPS devices, etc.), which is projected to evolve into a billion-dollar field within the next decade. The numbers tell the story – total 2016 consumer spending in the pet industry was estimated at $7 billion in Canada and a whopping $62.7 billion in the United States. The US number has been growing year by year at a steady rate of around 4%, largely unaffected even by the financial crisis.
Profiling pet M&A
Considering the shifting consumer demands, the most successful buyers during the pet M&A surge have unsurprisingly been those focused on acquiring pets retailers and pet lifestyle product manufacturers that market "natural" alternatives to the big-box names. Some buyers have set their sights on consolidating chains of pet groomers, boarding facilities, and veterinary hospitals across the United States and Canada – businesses that were traditionally locally, or at most, regionally owned. Nascent "pet tech" start-ups have proven attractive to major players in the technology sector, no doubt eager to take advantage of emerging trends, such as millennials' desire to showcase their pets via social media. In fact, Q3 of 2016 saw almost as many transactions in "pet-tech" as in the rest of the pet industry combined.
Stagnating or continuing growth?
Some in the industry cite factors such as reliable growth in consumer spending and emergence of "pet tech" as indicators that the recent surge of M&A activity is far from over. Others, however, have hinted at consumer realization that higher price does not always equal higher quality. Further, it has been pointed out that as the pet industry becomes more consolidated with each major transaction, the number of viable targets decreases.
One can safely say at least, that in the past few years pet companies have proven to be the cat's pyjamas of the middle-market.
The author would like to thank Peter Charbonneau, Articling Student, for his assistance in preparing this legal update.
Stay informed on M&A developments and subscribe to our blog today.
About Norton Rose Fulbright Canada LLP
Norton Rose Fulbright is a global law firm. We provide the world's preeminent corporations and financial institutions with a full business law service. We have 3800 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.
Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.
Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.
For more information about Norton Rose Fulbright, see nortonrosefulbright.com/legal-notices.
Law around the world
nortonrosefulbright.com
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
