Why this may be the best time to sell your company!

In this very strange time we are all in, I have made a point to look for silver linings from this pandemic–even when many people are without jobs, are immersed in the CARES Act details and may have more time

What an amazing industry we are part of right now!  Who would have guessed 6 months ago that most pet companies would be realizing record months and product shortages because of increased demand?  If you are like me, you are counting your blessings every day that you make your living in this wonderful, thriving, and growing segment.

To answer the question about whether it is a good time to consider selling a pet company, I interviewed two of the pet industry’s M&A movers and shakers as well as a few other folks active in the M&A market.  Overall the answer seems to be a resounding “yes!”

Jim Heim, President of Business Development for Central Garden and Pet, is one of our industry’s most respected M&A veterans.  Jim confirmed that Central is actively seeking acquisitions – but not just any acquisition.  Sustainable long-term growth, a positive benefit to both pets and their parents, and innovation are the qualities that get them excited about an acquisition.  He said that they are not seeing as much deal flow right now, but he strongly believes – as do I – that M&A activity will surge when a vaccine comes out.  The challenge right now is that it can be difficult to travel to visit people’s plants and offices, and potential sellers are focused on getting as much product out the door as possible to meet demand.

The pet industry is one of the safest places an investor can put capital, and Jim strongly believes that is not going to change anytime soon.

Manna Pro is one of the pet industry’s most active acquirers.  They closed on their most recent transaction, Doggie Dailies, right smack in the middle of the COVID crisis.  When I asked their Executive Vice President of Business Development, Roger Cagle, about their level of interest in making further acquisitions, he enthusiastically replied that it is their intention to keep their pipeline full of opportunities, and that they are more active than ever!  He believes that the COVID crisis has changed some sellers’ timeline perspectives, and that instead of waiting three years to sell, they may be ready to sell now in order to take advantage of the strong tailwinds in the pet market.

He went on to say that many companies have seen a huge “COVID bump” in business due to the pet-buying frenzy, and that a potential acquisition target must prove that the bump is sustainable in the long term before they will pay a premium multiple.

My discussion with the broker/dealer for BirdsEye Advisory Group, Jay Turo of GT Securities, further cemented the gratitude I have that I am part of this amazing industry.  While M&A in the pet industry is on fire – we signed up two deals in the last few weeks – other industries are truly suffering.  Many of Jay’s clients have experienced a significant slowdown in M&A transactions, even in industries that are benefiting from COVID.  “Everyone is waiting to see what is going to happen.  Sellers expect a high multiple because they see what is happening in the stock market, but many buyers are hesitant to pay a premium because we don’t know how long this crisis is going to last.” Jay explained.  He went on to say that they are seeing more re-financing transactions because of the low interest rates and because re-financing is not full of emotions like the full-blown sale of a company.  In addition, re-financings can get done without in person meetings.  Like Jim Heim, he believes that once there is a vaccine, the M&A spigots will open.

Finally, I spoke with Andrew Peix, Director of Business Development at Gauge Capital, about the level of activity they have seen over the past few months.  I was very surprised when he told me that they had closed four deals since COVID started!  While he said deal flow is about 70% of what it was in 2019, he believes that there may be a flood of deals happening in the fourth quarter because of the potential of higher capital gains rates in 2021.

From my perspective, I have seen a strong uptick in interest for pet companies from buyers over the last few months.  It was brutally quiet from March through July, but then slowly it started to dawn on them that our industry truly IS recession resistant, that people turn to their pets more than ever in times of crises, and there isn’t a better time to invest in our industry’s future.

Carol Frank of Boulder, CO, is the founder of four companies in the pet industry and a Managing Director with BirdsEye Advisory Group, where she advises pet companies in M&A transactions and Exit Planning.  She is a former CPA, has an MBA, is a Certified Mergers and Acquisitions Advisory (CM&AA) and holds Series 79 and 63 licenses.  She highly values and incentivizes referrals and can be reached at birdseye@birdseyeadvisory.com.