We’re more than halfway through 2021, and while the economy and life overall are still a bit troubled as we all strive to get out of COVID-19, pet food mergers and acquisitions have been regular and frequent year-round ( M&A). In fact, at least 20 pet food deals have been completed to date.
This is evidence of the continued growth and health of the market, which despite – and almost paradoxically because of – the pandemic was pushed even further by a 2020 banner. Prior to 2020, pet food attracted new investors in the form of human food companies, private equity, and the like; While this slowed somewhat over the past year, the focus and activity accelerated again in 2021 thanks to the surge in pet ownership and spending on pet food and other products and services.
One investor commented, “We love the macro trends in the pet industry. It’s stable and growing, fueled by an increased focus on pet well-being, nutrition and health resulting from the shift to treating our pets like family members. ”This came from Adam Fuchs, Principal at A&M Capital Partners acquired a majority stake in BrightPet Nutrition Group in October 2020. (BrightPet himself has been on the M&A front since then, buying MiracleCorp, a pet food company, in January 2021.)
Fuchs was quoted in an article for Pet Age by Carol Frank, a long-time pet industry expert, including serving as an M&A advisor. In addition to the long-term trends and variables that have long drawn investors into the pet industry, she explained two other unique reasons for this post-COVID time.
Upcoming US Tax Concerns Are Now Fueling Pet Food Mergers And Acquisitions?
When the Biden government announced a proposal to increase the capital gains tax rate earlier this year, Frank said it created a “sense of urgency” among US pet product owners. “Many founders / owners hoping to leave their business soon postpone their schedule to minimize the tax consequences of a sale,” she wrote. The proposal provides for almost doubling the tax rate.
Current environment difficult for small players
While the pet food and pet industry has weathered the past rocky months remarkably well, it has not escaped the supply chain and other disruptions that are rocking many industries. Frank turned to the findings of David Blatte, the CEO of Worldwise Corp. (a manufacturer of pet products) on how rising sales and operating costs are more difficult for smaller businesses to cope with. These companies struggle to pass the higher costs on to their customers and then suffer a loss of profitability.
“You need a scale to make it in today’s environment,” said Blatte, quoted by Frank. “For example, freight rates have more than tripled and it is still difficult to secure containers. The lead times have increased considerably – so the little boys are still being pushed out. “
The pet food industry (like most others) has a long history of small startups being taken over by larger competitors; In fact, some players are entering the market with it as a key aspect of their business strategy. But it seems that the pandemic and ongoing logistical disruptions are now making the situation worse and potentially accelerating the implementation of such strategies.
Are entrepreneurs discouraged from entering pet food?
In fact, many M&A deals so far this year fall under the “big dog, devouring, smaller dog” model. The volatile business environment combined with the tax situation in the US could mean that more small businesses are looking for investment or sales candidates sooner rather than later.
This means that we can assume that M&A activity in the pet food space will continue at a rapid pace. As the headline of Mark’s article claims, it is showing no signs of slowing down – at least not for the rest of 2021 and possibly a few more years, according to Marks and the experts she consulted.
It is certainly understandable when, given the current situation, smaller players should sell now and move on. Let’s just hope this doesn’t stop new players and entrepreneurs from entering the pet food market. They have long filled the industry with energy, innovation and enthusiasm, and it would be a shame if that dampened or even went away.
Source * www.petfoodindustry.com – * Source link