February 27, 2023
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.
1 big thing: Pet care fetches investor dollars
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.