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Investors are increasingly viewing pet care as a sustainable bet, as the number of households with new pets has grown and pet spending could increase more than 100% by 2030, Kimberly writes.

Why it matters: That market size is fueling deal activity, with CPG retailers, health care companies, and private equity firms all wanting a slice of the pie.

What’s happening: Total spending in the pet care industry is expected to increase to $277 billion by 2030, a 134% increase from 2019 levels, according to a Morgan Stanley report.

The big picture: “You're going to have to make an investment in an area that you think will have sustained cash flow for a longer period of time, and that's what's driving part of the demand for pet-related services and pet-related products,” says Mike Graziano, a director of RSM’s transaction advisory services practice.

“The life cycle of pet ownership does provide cash on hand,” he says. “Many people consider pets part of their family and so they're going to spoil them."

Zoom in: Los Angeles-based dog care startup Dogdrop, a portfolio company of venture fund and startup studio Science Inc., raised $2.9 million in September 2021.

Fuel Capital led the round and was joined by Muse Capital, Animal Capital, Gaingels, The Helm, Mars PetCare and Garrett Smallwood, the CEO of publicly traded pet company Wag.

“We believe there would be a nationwide brand around doggy day care,” Michael Jones, Science Inc.’s CEO, tells Axios, adding that the marketplace is highly fragmented with just a few local providers offering dog day care services.

To fuel its expansion, Dogdrop went to a franchise model, Jones says.

Of note: Science Inc. had also incubated DogVacay, which became Rover, an online pet-sitting marketplace that went public via a SPAC in 2021.

Yes, but: “We love the sector… we just haven't found enough stuff to get us excited,” Jones adds.

State of play: Alongside venture investors, private equity and strategic buyers are circling pet care.

“Most of it is trying to get into a new and thriving and expanding industry early and trying to stand that up and grow it, and seeing whether it’s a worthy investment,” Graziano says.

Since 2017, private equity dealmaking in the U.S. veterinary sector has reached over $45 billion, according to PitchBook.

Earlier this month, Jif peanut butter parent J.M. Smucker said it will sell several pet food brands to Post Holdings in a $1.2 billion cash-and-stock deal.

J.M. Smucker’s pet portfolio now focuses on the higher-growth, higher-margin businesses of Milk-Bone pet snacks and Meow Mix cat food, and it will continue to look for more acquisitions of pet snacks and cat food, Axios reported from the CAGNY conference.

1 big thing: Pet care fetches investor dollars

Illustration of a pet carrier overflowing with money. 

Haleon is exploring a sale of its ChapStick lip balm business, which could fetch about $600 million, Bloomberg reports, citing people familiar.

Why it's the BFD: Just a few months after spinning out of pharmaceutical giant GSK last year, Haleon is already thinking strategically about ways to bolster its business, Kimberly writes.

Driving the news: The consumer health company is reportedly working with advisers on a potential sale.

The big picture: As it sheds ChapStick, the company may also be eyeing large potential deals to bulk up its brand portfolio, though it is still in the early stages, Bloomberg reported in January.

A roll-up with Sanofi’s $30 billion consumer-health operations could also be on the table, according to the report.

Context: Centrum, Emergen-C, Tums and Advil are brands that are still under Haleon.

Haleon representatives couldn’t immediately be reached for comment.

2. The BFD: Haleon exploring $600M sale of ChapStick  

Animated illustration of a tube of lipstick rolling up to reveal a hundred dollar bill. 

Consumer packaged goods conglomerates continued to present at CAGNY on their respective M&A strategies through Friday last week, outlining plans for both acquisitions and divestitures.

Why it matters:  A large portion of CPG divestitures will likely be ancillary businesses, indicating an active middle market for M&A, Richard writes.

Be smart: Investment banks may not rake in large fees on middle market deals, but assisting CPG groups on those transactions help financial advisers solidify relationships with the sellers.

That, in turn, could lead to advising on bigger deals in the future.

Catch up quick: Here are highlights from my week in Boca. To round out our coverage, let's start with Conagra Brands, which said it is evaluating both acquisitions and divestitures to re-form its portfolio.

Conagra Brands said it is evaluating buys and sales to refocus its portfolio. The company's focus is on center-of-the-plate, snacking and frozen, and pointed out that ingredients are also a good business. Its shelf-stable products, which include Armour Star canned meats and Pam cooking spray, got less airtime.

PepsiCo will also continue to weigh "selective" acquisitions and divestitures, as it transforms its energy drink portfolio following an investment in and distribution deal with Celsius Holdings last year.

Pepsi also said it was interested in snacks outside of savory, and selling its beverage products in forms such as powders, tablets and concentrates, as well as reimagining some of its products such as Doritos as ingredients for meals.

Hostess Brands, which could be a target for Mondelez, said it is on the outlook for acquisitions of its own in the snacking category, and noted that savory is part of that consideration.

L'Oreal said it will "nourish" its portfolio with more buys, explaining that it tends to buy small, fast-growing brands typically based in the U.S. and sometimes Asia.

Yes, but: Newell Brands said that it is not planning any major divestitures or acquisitions after selling its connected home business last year.

Separately, Coca-Cola said it was having difficulties integrating its multibillion-dollar acquisition of sports drink brand BodyArmor.

But, it plans to continue to look at ways to expand its portfolio, and it will take a $700 million hit to free cash flow in part due to an M&A transaction payment this year.

3. CPGs portfolio pruning points to active middle market

Cans of Conagra Brands' products. Photo: Daniel Acker/Bloomberg via Getty Images

• Rebuy, a Minneapolis-based personalization platform for online retailers, raised $17m in Series A funding. M13 led, and was joined by Dynamism Capital, R-Squared Ventures, and insiders Peterson Ventures and Sidekick Partners. https://axios.link/3EGfsLL

• AmerCareRoyal, an Exton, Pa.-based portfolio company of HCI Equity Partners, acquired Team Three, a St. Louis-based provider of disposables for the food service and janitorial industries. www.amercareroyal.com

• Borealis Foods, a Canadian food tech company, agreed to go public at an implied $150m pre-money valuation, via Oxus Acquisition Corp. (Nasdaq: OXUS). Venture backers include Cibus Fund and Rocana Ventures. https://axios.link/3KFaTVP

4. Retail transactions

• Peter Clare is retiring from Carlyle, where he is chief investment officer of private equity. He’ll be succeeded by Sandra Horbach and Brian Bernasek. www.caryle.com

•  LINGA rOS, a cloud-based restaurant operating system provider, appointed former Heartland Retail exec Daymion Phelps vice president of sales.

5. It's Personnel

Welcome back, Retail readers. Happy Monday.

🛑 Situational awareness: The board of Bath & Body Works told shareholders it would not bend to activist investor Third Point's ultimatum to add Munib Islam to the board. 

🐻 What we’re watching: Kim joined a friend’s watch party for an intimate theater screening of “Cocaine Bear” — it’s just as funny as the name sounds.

🙏 Thanks to newsletter editor Claire Rychlewski and copy editor Mickey Meece for today's edits.

Thank you for reading Retail Deals. See you again tomorrow!

February 27, 2023

1 big thing: Pet care fetches investor dollars