BOSTON — Increasing pet adoption rates, the humanization of pets, and continued growth of e-commerce has fueled healthy M&A activity for the pet industry, according to Capstone Partners’ Pet Care Market Update report.

Though the volume of business transactions within the sector has moderated year-over-year, M&A activity continues to outpace pre-pandemic levels, according to Capstone Partners, especially within the pet nutrition space.


Overall M&A activity

Capstone Partners estimates a total of 49 M&A transactions announced and completed through July 19, 2023. Though this activity is lower than last year’s, these transactions still outpace pre-pandemic levels with an annual average of 40 M&As from 2017 to 2019. According to the company, rising interest rates have led to this moderate activity.

Volume of mergers and acquisitions in the pet industrySource: Capital IQ, FactSet, PitchBook and Capstone Partners

Overall, M&A activity has mostly been led by major consumer packaged goods (CPG) companies, like Mars, Nestlé and Clorox. For example, Post Holdings made its first foray into the pet food space by acquiring major pet food brands from The J.M. Smucker Company earlier this year.

But these major players are becoming more selective with their acquisitions, hunting down pet food brands in the e-commerce space. For example, Mars acquired Nom Nom Now, a direct-to-consumer (DTC) pet food brand, expanding Mars Petcare’s robust online offerings. Seeing the significant value in e-commerce, many acquiring companies are willing to shell out more cash, as Mars dedicated $1 billion in its acquisition of Nom Nom.

With this in mind, Capstone Partners anticipates that strategic buyers and private equities will be more aggressive in their M&A strategies going forward, targeting pet food brands and companies that are taking advantage of long-term growth opportunities, like that of e-commerce.

“We continue to see very high levels of buyer interest on active mandates as well as inbound interest from buyers looking for acquisition opportunities in the pet and vet spaces,” said Tom Elliott, managing director of Capstone Partners and lead contributor of the report. “We have also experienced an uptick in interest from international buyers which we expect will help keep valuation multiples solidly in the double digits.”


Pet food M&As

According to the report, skyrocketing input and transportation costs have cut into profits for pet food processors, leading them to increase their prices for consumers. In fact, the price of pet foods reached a peak at a 15.7% increase in November 2022, according to the US Bureau of Labor Statistics. As the supply chain has somewhat stabilized, costs have begun to deflate, with price increases reaching 12.1% in June 2023.

Inflation for pet food shows signs of slowingSource: Capstone Partners, US Bureau of Labor Statistics

This consistent ebb and flow in inflation has yet to deter business interest in the pet nutrition space.

As a result of increased awareness of pet health and wellness, consumers have become a bit more concerned about their pets’ diets, increasing their spending habits on more premium and innovative nutritional offerings. And private equities are taking note, funneling more dollars into the space. For example, Mid America Pet Food was backed by private equity firm TA Associates to acquire Nature’s Logic in August 2021, and private equity firm Beach Point Capital acquired Wet Noses in February of this year.

“The increasing imbalance between the supply and demand of contract manufacturing for pet food has spurred some recent M&A activity,” Elliott said. “The acquisition of Red Collar manufacturing assets by Hill’s to support the strong growth of its Science Diet Brand and the merger of Natural Balance with Canidae are two prime examples of transactions motivated by access to manufacturing. Discussions with buyers in the space have indicated that numerous deals are under LOI and I expect a flurry of pet deals closing in Q3 and into Q4.”

Private equity interest in the pet nutrition industry is only expected to continue to grow with the pet supplement market poised to soon reap the benefits of the pet humanization movement. Though this particular segment has long been regarded as niche, it has experienced rapid growth, as shared by Capstone Partners. According to Grand View Research, the pet supplement market was worth $2 billion in 2022 and is estimated to grow at a CAGR of 5.9% through 2030.

No matter the rising costs and consistent supply chain disruptions, it’s clear that buyers are upping their interest in the pet nutrition industry, specifically targeting companies with significant manufacturing capabilities and brands that offer innovative products playing into consumer demand.

Read more on recent M&As from pet food processors, suppliers and retailers.  

Read more about M&A trends.