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Pet Industry OverviewS p r i n g 2 0 1 9 v 1 3 . 1
Disclaimer
This report was produced for the benefit of all parties interested and involved in the pet industry but its contents are for informational purposes only. Theopinions expressed reflect our analysis as of March 29, 2019, unless noted otherwise, and is subject to change. While the information is from sources weconsider reliable, we make no warranty of its accuracy. I offer this report to anyone free of charge. However, its contents are property the of CascadiaCapital, LLC except where third party data has been cited, and should not be reproduced without my expressed written permission. I appreciate youradherence to this policy.
Bryan JaffeManaging DirectorCascadia Capital, [email protected]
Executive Summary
2
As industry participants position themselves to succeed in a consumer centric paradigm, new complexities have emerged with long term implications
▪ Latency between consumer trends and pet trends has compressed from years to months, which will put immense pressure on the industry’sregulatory framework
Consumer demand for pet products that incorporate CBD, human diet concepts such as Keto and Paleo, and protein alternatives issignificant but lacks regulatory and, in some cases, legal clarity
That has not stopped manufacturers or retailers from bringing these products to market in order to satisfy demand
If AAFCO cannot evolve to become more nimble and responsive, the industry will become more risky to all involved
▪ As Petco forges ahead with its new wellness enabled vision, PetSmart has largely stood still lacking financial flexibility
The success of Petco’s strategy could put pressure on PetSmart to sell or IPO Chewy, it’s most valuable liquid asset
Tepid results for Petco, could place these two organizations on a merger path in order to remain relevant
Slower industry growth is driving consolidation, a theme that will continue for the foreseeable future
▪ The cost of doing business in the pet industry has increased as physical and online retailers monetize their market positions, making it moredifficult for midsized and emerging brands to compete
▪ Given the pace of change, strategics are under more pressure to acquire assets that enable them to meet emerging customer needs, or risk losingout on the ability to monetize faster growing market opportunities
▪ Private equity is leading the consolidation charge due to broader business malaise prevalent among large strategics, which will enhance focus onprofitability as the key criteria underlying acquisitions and put downward pressure on valuations
Notwithstanding slower growth and more turbulent competitive dynamics, we believe the current environment offers a market opportunity that maynot manifest itself again for some time
▪ The continued transition of Blue Buffalo to mass, including Wal Mart, and the Champion transition to major pet specialty will open unprecedentedshelf space in the independent channel for emerging and channel dedicated family brands in the consumables category
▪ Retail consolidation will allow strong independent concepts the ability to enhance reach and accelerate growth, organically and through acquisition
▪ The forthcoming tension among the human and pet food supply chains will offer ingredient companies significant M&A and capital formationopportunities
▪ Company’s across the industry that can offer acquirers a defensible moat – as defined through brand, operational capabilities, and intellectualproperty – will grant a subset of players category leading valuations in financial and M&A transactions
Market Growth Assessment
3
S E C T I O N I
Category 2011 2012 2013 2014 2015 2016 2017 2018 2019E
Food 19.85 20.64 21.57 22.26 23.05 28.23 29.07 30.32 31.68
% growth 5.8% 4.0% 4.5% 3.2% 3.5% 22.5% 2.9% 4.3% 4.5%
Supplies/OTC Med 11.77 12.65 13.14 13.75 14.28 14.71 15.11 16.01 16.44
% growth 7.6% 7.5% 3.9% 4.6% 3.9% 3.0% 2.7% 6.0% 2.7%
Veterinary Care 13.41 13.67 14.37 15.04 15.42 15.95 17.07 18.11 18.98
% growth 3.1% 1.9% 5.1% 4.7% 2.5% 3.4% 7.0% 6.1% 4.8%
Live Animal Purchases 2.14 2.21 2.23 2.35 2.32 2.10 2.10 2.01 1.97
% growth 0.5% 3.3% 0.9% 5.4% (1.3%) (9.5%) 0.0% (4.3%) (2.0%)
Other Services 3.79 4.16 4.41 4.84 5.41 5.76 6.16 6.11 6.31
% growth 8.0% 9.8% 6.0% 9.8% 11.8% 6.5% 6.9% (0.8%) 3.3%
Total 50.96 53.33 55.72 58.24 60.48 66.75 69.51 72.13 75.38
% growth 5.4% 4.7% 4.5% 4.5% 3.8% 10.4% 4.1% 4.4% 3.9%
Actual
Industry Growth Analysis
4
$ B
illio
ns
$ billions
Note: 2016 reflects methodology changes for APPA calculations that when normalized result in ~ 4% total industry growthSource: APPA, St. Louis Fed, TD Ameritrade, U.S. Labor Bureau
According to data provided by the APPA, the pet industry grew 4.4% in 2018, exceeding estimates by 0.7%
▪ Food category growth accelerated to 4.3%, exceeding estimates by 1.6%
– Growth acceleration is attributed to increased availability of specialized diets, Millennial willingness to pay, and manufactures taking price, as evidenced by faster growth among APPA figures versus PCE measurements
o Millennials are spending almost 44% more a month than Baby Boomers on their dogs
– Food category benefitted from 0.7% inflation in 2018, reversing a three year deflationary trend
▪ Veterinary category growth decelerated to 6.1% in 2018, missing estimates by 0.8%
– Veterinary Care benefitted from inflation of 2.5% in 2018
– Declining growth rate reflects falling prices and increased utilization of preventative care among new pet owners
Pet related PCE grew at 4.3% in 2018, the slowest observed growth rate since the recession
▪ Product-related PCE grew at 4.2% in 2018, an acceleration from 3.5% in 2017
▪ Veterinary Care-related PCE grew at 4.4% in 2017, a deceleration from 9.7% in 2017
APPA industry growth for 2019 is forecasted at 3.9%, representing a deceleration versus 2018 actual growth
▪ Food category growth is anticipated to slightly accelerate to 4.5% in 2019
▪ Veterinary Care category growth anticipated decelerate to 4.8% in 2019
Analysis of Industry Growth Drivers
5Sources: Pethealth, Inc., U.S. Bureau of Economic Analysis, U.S. Labor Bureau
U . S . U N E M P LOY M E N T R AT E
R E A L WA G E G R O W T HP E T R E L AT E D P E R S O N A L C O N S U M P T I O N
E X P E N D I T U R E S ( $ B )
P E T A D O P T I O N R AT E S
Unemployment volatility ticked up in 2018 Feline adoptions grew 2.3% while canine adoptions declined 2.0% in 2018
Real wages effectively decline in 2018 Pet related PCE growth continued to decelerate
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
Jan
-08
Jul-
08
Jan
-09
Jul-
09
Jan
-10
Jul-
10
Jan
-11
Jul-
11
Jan
-12
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Jul-
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Jan
-16
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Jan
-17
Jul-
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Jan
-18
Jul-
18
Jan
-19
-0.6%
-0.4%
-0.2%
0.0%
0.2%
0.4%
0.6%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Jan
-03
Oct
-03
Jul-
04
Ap
r-0
5
Jan
-06
Oct
-06
Jul-
07
Ap
r-0
8
Jan
-09
Oct
-09
Jul-
10
Ap
r-1
1
Jan
-12
Oct
-12
Jul-
13
Ap
r-1
4
Jan
-15
Oct
-15
Jul-
16
Ap
r-1
7
Jan
-18
Oct
-18
Unemployment Rate Change
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000 Product Service
-8%
-3%
3%
8%
13%
Sep
-10
Feb
-11
Jul-
11
Dec
-11
May
-12
Oct
-12
Mar
-13
Au
g-1
3
Jan
-14
Jun
-14
No
v-1
4
Ap
r-1
5
Sep
-15
Feb
-16
Jul-
16
Dec
-16
May
-17
Oct
-17
Mar
-18
Au
g-1
8
Jan
-19
Canine Adoptions YoY Change Feline Adoptions YoY Change
Public Company Performance
6(1) Data set includes Central Garden & Pet Company, Freshpet, Inc., IDEXX Laboratories, Inc., Neogen Corp., Oil-Dri Corp of America, PetMed Express, Inc., Pets At Home Group, PLC, PetIQ, Inc., Trupanion, Inc., Virbac SA and Zoetis, Inc.(2) Companies that did not report two positive EPS quarter for each of the past four quarters are excluded from any EPS based calculations which has a meaningful impact of volatility calculations and results in changes to year-over-year comparisonsSource: CapitalIQ(3) Publicly available data
P E T I N D U S T RY R E V E N U E S P E T I N D U S T RY N O R M A L I Z E D E P S
Industry revenue and earnings, as measured by public company performance, was favorable in 2018(1)(2)(3)
▪ Earnings for publicly traded pet companies in our index grew 36.6% in 2018, benefitting from weaker comps posted in the 2H2017
– Health care equities drove the majority of earnings growth in 2018 led by Zoetis, IDEXX, Virbac and Neogen
– Other favorable performers include Oil-Dri and PetMed Express
▪ Revenue for publicly traded pet companies grew 9.4% in 2018, driven again by health care spend
– Revenue growth excluding Zoetis, which accounts for between 40% - 45% of our comp group revenue in any quarter, was 9.2%
Notably, emerging growth stocks Freshpet, PetIQ and Trupanion posted at least one positive earnings quarter in 2018, with PetIQ and Trupanionnarrowing losses across the full calendar year while Freshpet was essentially flat
0%
2%
4%
6%
8%
10%
12%
14%
16%
$0
$500
$1,000
$1,500
$2,000
$2,500
Q1
201
3
Q2
201
3
Q3
201
3
Q4
201
3
Q1
201
4
Q2
201
4
Q3
201
4
Q4
201
4
Q1
201
5
Q2
201
5
Q3
201
5
Q4
201
5
Q1
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6
CQ
3 2
01
6
CQ
4 2
01
6
Q1
201
7
Q2
201
7
Q3
201
7
Q4
201
7
Q1
201
8
Q2
201
8
Q3
201
8
Q4
201
8
Revenue Adjusted Adjusted YoY Change
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
Q12013
Q32013
Q12014
Q32014
Q12015
Q32015
Q12016
Q32016
Q12017
Q32017
Q12018
Q32018
Adjusted EPS Adjusted YoY Change
(in $ millions)
Deal Flow Analysis
7Source: CapitalIQ, Pitchbook
B R O A D E R M & A A C T I V I T Y
P E T S E C TO R D E A L VO LU M E
Industry consolidation continued within the pet sector in 2018
$174
$221
$188
$256
$157
$152
$200
$136
$135
$235
$151
$200
1,575
1,328 1,269
1,119
1,331
1,137 1,105 1,126
964 924
783
572
0
200
400
600
800
1,000
1,200
1,400
1,600
$0
$50
$100
$150
$200
$250
$300
Q12016
Q22016
Q32016
Q42016
Q12017
Q22017
Q32017
Q42017
Q12018
Q22018
Q32018
Q42018
B2C M&A Deal Volume and Values
Deal Value ($B) Deal Volume
$39
$19
$28
$21
$16
$31
$39
$21
$26
$33
$48
$23
$17
219
192 190 185 192 180
191 201
211
184 191 182
113
0
50
100
150
200
250
$0
$10
$20
$30
$40
$50
$60
Q12016
Q22016
Q32016
Q42016
Q12017
Q22017
Q32017
Q42017
Q12018
Q22018
Q32018
Q42018
Q12019
B2C PE Deal Volume and Values
Capital Invested ($B) Deal Volume
5.4x 5.4x6.0x 5.7x 5.8x
4.3x5.4x
5.7x 5.7x 5.7x
9.8x
10.8x
11.7x 11.5x 11.5x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
2015 2016 2017 2018 Q1 2019
Debt/Equity Invested in PE Deals
Debt/EBITDA Equity/EBITDA EV/EBITDA
B2C M&A and PE deal volumes have fallen, driven by market and political uncertainty
Industry Trends
8
S E C T I O N I I
Key Industry Trends
9Source: Amazon.com, General Mills, Marketplace Pulse, Packaged Facts, Pet Products News, Pitchbook
Blue Buffalo Banks Further on FDM. General Mills announced that they intend to double Blue Buffalo’s retail availability by April 2019. Central to thisstrategy will be launching Wilderness in FDM. When Blue transitioned Life Protection Formula in August 2017, it communicated its intention to protect thepet specialty channel by preserving exclusive access to its others brands. The quest for growth and profits rendered that commitment fleeting. By the end ofApril, according to General Mills earnings presentation Blue will have a retail ACV of 65%, up from 32% in October 2018. Retail sales declines in pet specialtynecessitated the move according to General Mills executive leadership. Notably, Blue also posted 24% ecommerce growth for the nine months endingFebruary 2019. If there is anything left in the relationship between Blue and pet specialty we will soon find out.
Amazon Accelerates but Housebrands Not a Category Killer. According to Packaged Facts, Amazon generated pet category sales of $3.3 billion in 2018,giving it a 6% share of the market. Amazon pet food sales exceeded $1 billion in 2018, up over 20%. However, Amazon’s own housebrand Wag, launched inmid-2018, only accounted for $2 million of these sales. While Amazon housebrand sales will invariably increase over time and benefit from the launch ofcomplementary brands, such as Solimo, owning the buy box is not yet translating into changing consumer behavior. Most Wag and Solimo product ratingsare 3.5 to 4 stars, evidence of mix sentiment, and the launch has been plagued by production issues. A study by Marketplace Pulse suggested that Amazonhousebrands across categories were having limited impact on brand sales online. With estimates for online penetration of pet food sales reaching as high as50% over time, Amazon stands to benefit anyway you look at it.
Petco Launches Repositioning Strategy. Petco is ushering in a comprehensive new strategy firmly rooted in the health and wellness driver of industrygrowth. Petco’s approach involves eliminating products whose formulations feature artificial ingredients. As part of this process, Petco will seek to transitioncustomers in many leading national brands to its housebrands and other channel dedicated brands. Criticism has ensued as Petco’s housebrandformulations may not fully comply with their own standards and many brands they are removing appear to be for financial or competitive reasons.Additionally, Petco launched its PetCoach store which “offers the highest quality suite of personalized pet services, products and experiences – all designedthrough a veterinary lens – to address total pet health and wellness.” While its competitor runs in place, we applaud Petco for its efforts to reframe itsappeal and relevancy to pet owners. However, if traffic and transactions don’t materialize, Petco may lack the flexibility for a further pivot. Get your magic8-ball ready.
Follow the Funds to See the Industry's Future. 2018 was a record year for industry consolidation, but it also outperformed in terms of private placements,as equity flowed into the category at record levels. Over $1 billion of equity capital was invested in pet related enterprises since 2017 (see Slide 15). Notably,the year was punctuated by larger deals, with the median deal size of $45 million among transactions whose proceeds yielded more than $5 million.Investments in dog-walking apps accounted for 40% of deal value, but 23% went into ingredient manufacturing companies, with an additional 7% flowing todirect-to-consumer dog food brands. Institutional equity is flocking to these opportunities because they are not well served by existing market participants.The deals of today will fuel the exits three to five years down the road, which will only serve to extend the consolidation cycle. However, the subsectorsattracting capital speak to a much broader market opportunity within the industry.
Publicly Traded Pet Company Performance
10Source: CapitalIQ, TompsonOne
I N D U S T RY E A R N I N G S R E B O U N D E D A G A I N S T A W E A K 2 H 2 0 1 7 C O M P
P E T I N D U S T RY S TO C K S C O N T I N U E D TO O U T P E R F O R M T H E S & P 5 0 0 I N 2 0 1 8
Equity valuations of core publicly traded pet companies in our indexoutperformed the S&P 500 by 21% in 2018
▪ Our pet index has outperformed the broader market index(S&P 500) by 110% over five years
2018 was a mixed bag for pet equities with half the index postingnegative returns, consistent with the 7.0% decline of in the S&P 500during the calendar year
▪ Freshpet (61%), Zoetis (19%), and IDEXX (18%) posted thestrongest gains among the equity group
Revenue growth was the most rewarded aspect of public companyperformance with top equity gainers all posting favorable toplinegrowth in addition to earnings growth
▪ Companies who posted favorable earnings through costcontainment or flat earnings all had equity value pricecompression
Revenue growth accelerated to 9.4% and benefitted from 125 bps ofinflation, including 70 bps of food inflation, resulting in 36.6% earningsgrowth, against a weak comp
Key notes from emerging growth pet equities:
▪ Freshpet (61%) delivered strong revenue growth, but highercustomer acquisition costs constrained earnings
▪ Trupanion (-12%) experienced topline growth of 25% andslightly narrowed losses, but regulatory concerns and pressurefrom short sellers constrained the stock
▪ PetIQ (6%) experienced strong topline growth due to theannualization of its VIP Petcare acquisition, but margin dilutiondue to mix constrained the stock -100%
-50%
0%
50%
100%
150%
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
Q12013
Q32013
Q12014
Q32014
Q12015
Q32015
Q12016
Q32016
Q12017
Q32017
Q12018
Q32018
Adjusted EPS Adjusted YoY Change
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
01-18 02-18 03-18 04-18 05-18 06-18 07-18 08-18 09-18 10-18 11-18 12-18
S&P 500 Pet Index
Source: CapitalIQ
Nestle and J.M. Smucker Analysis
11
N E S T L E V S . S & P 5 0 0 J . M . S M U C K E R V S . S & P 5 0 0
Nestle’s PetCare division posted 3.3% revenue growth in 2018, withgrowth accelerating in 2H2018, after posting revenue gains of 2.9% in1H2018
▪ Organic growth for the division was reported at 4.5%, secondamong Nestle divisions
▪ Posted 21.6% operating profit margin
▪ Acquired businesses and emerging markets producing doubledigit growth
▪ Experiencing strong growth in feline with Felix brand nowgenerating $1 billion in sales
Nestle’s broader business reached an inflection point in 2018, withrevenue acceleration after six years of sequential declines
▪ Nestle ecommerce sales growing at 18%
PetCare will focus on personalization as a key growth driver goingforward, and the business will make investments in order to gain moredirect access to the end customer
Division will also invest heavily in product innovation to differentiatefrom its competitive set, reduce time to market, and capture emergingcustomer segments
The J.M. Smucker Company completed a strategic review process for itsPet Food & Snacks business in late 2018, on the back of its acquisition ofAinsworth in May 2018
▪ #1 in dog treats, #2 in cat food, #2 in premium dog food
▪ 24% growth for the twelve months ended January 31, 2019,posting 17.6% operating profit margins, a 3.4% erosion overthe past twelve months
▪ In February management lowered 2019 sales estimates forAinsworth by $50 million (6.3%), but did not attribute theanticipated slower growth rate to Blue Buffalo expansion atFDM or Wal Mart specifically
Company believes it has significant growth opportunities in categoryand is forecasting 30% net sales growth, though the acquisition cloudsthe comp
▪ Believe there is white space for Nutrish – distributionexpansion, velocity enhancements, category expansion
▪ Continued growth of Nature’s Recipe, which produced 33% netsales growth in 2018
▪ Dog treat innovation to add $100 million incremental sales
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
01-18 02-18 03-18 04-18 05-18 06-18 07-18 08-18 09-18 10-18 11-18 12-18
Nestlé S.A. S&P 500
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
01-18 02-18 03-18 04-18 05-18 06-18 07-18 08-18 09-18 10-18 11-18 12-18
S&P 500 The J. M. Smucker Company
Source: The J.M. Smucker Company, Nestle SA
Key Pet Industry Transactions
12Source: CapitalIQ, Pitchbook, RootLab Pet Food
Products Acquired by
Hyper-Pet, LLC, a portfolio company of Guardian Capital Partners acquired R2P Group Inc. and OurPet’s Company. Terms of the R2PGroup transaction were undisclosed. OurPet’s was acquired for approximately $23 million in a take private.
The pet supplies category is rapidly consolidating driven by private equity backed platforms. Scale advantages in competing across retailchannels and the need to align existing platforms with sectors of growth are driving elevated market activity. In combination, Hyper-Petnow occupies the number three position in the category and is better aligned with more rapidly growing retail channels. The addition ofR2P provides Hyper-Pet a broader retail and product portfolio position and enhanced capabilities in category management,housebrands, and private label.
Investment in
A consortium led by Astanor Ventures invested $125 million in Ÿnsect, a French startup that breeds insects to become ingredients forpet food, fish food, and plant fertilizers. Terms of the transaction were undisclosed.
Long term, insect protein is expected to be a major source of protein content in the pet food supply chain. The challenge is U.S. pet foodregulatory bodies move at a snails pace with respect to defining and approving pet food ingredients. As companies such as Ÿnsect bringproducts out of the lab and into the market, brands and retailers are unlikely to wait for the regulatory paradigm to catch-up. Nestle isalready testing a cricket based formulation as part of its RootLab concept launch. Many independent companies have also broughtcricket based consumables products to market. Through this funding, Ÿnsect has positioned itself as the independent pace setter in theingredient segment of the supply chain.
Acquired by
Acquired by
Abor Investments, a leading private equity firm to the food sector, acquired the private label pet food and treat manufacturingbusiness of Mars Petcare U.S., Inc. The re-branded Red Collar Pet Food business then acquired Hampshire Pet Products, amanufacturer of baked and cold formed pet consumables. Terms of the transactions were undisclosed.
As the cost of brand acquisitions escalates to unsustainable levels, private equity is seeking to play sector opportunities throughmanufacturing. This provides an opportunity to benefit from segment growth without paying brand M&A valuations. While private labelpet food has experienced market share erosion, Red Collar is well positioned to benefit from opportunities created in the grocery andmass channels as retailers seek to upside from increased retail traffic created by major brands jumping into the channel. The acquisitionof Hampshire positions Red Collar to provide its existing customers a broader product offering and expanded capabilities.
Symrise AG, a publicly traded manufacturer of flavors, fragrances, and ingredients, acquired International Dehydrated Foods /American Dehydrated Foods, a supplier of poultry based ingredients to the human and companion animal markets for $900 million.
As human grade protein available to support the pet food supply chain comes under demand stress, ingredient suppliers who canprovide replacement solutions stand to benefit. ADF is a leading supplier of shelf stable chicken meat, fat and concentrated chickenbroth that can enhance protein content, palatability, and lower a brands bill of materials. In combination with Symrise’s existing productportfolio, the company now offers a broad range of solutions to leading brands. At 4.1x Revenue and 17.8x EBITDA, Symrise is making abig bet on the future of pet food ingredients
Consumable
Analysis of Acquisition Multiples
13Note: (1) List is limited to transactions with estimated or observed multiplesSource: Capital IQ, Cascadia Capital
Our pet industry M&A comps database contains 100transactions which have occurred since January 2010 withdisclosed or proprietary estimated transaction multiplesacross five categories – Animal Health, Consumables, Retail,Hardgoods, and Veterinary
▪ Retail and Veterinary also include distribution assetsspecific to those channels
▪ A majority of pet industry M&A transactions continueto occur without transparency into the revenue orprofit multiples paid
Animal Health multiples experienced expansion driven bylarger deals that took place at premium valuations
▪ There were five Animal Health deals in 2018 withenterprise values of $850 million or more, thattraded at a mean of 20.0x EBITDA
Multiples among Consumables expanded a full point, drivenby Blue Buffalo and Ainsworth acquisition prices
Products acquisitions experienced slight multiplecompression due to the size of the businesses acquired andthe preponderance of deals that took place with financialbuyers
Retail and Veterinary multiples were unchanged due to alack of additional observations
P E T M & A T R A N SAC T I O N S –M E A N E B I T DA A N D R E V E N U E M U LT I P L E S
19.8x
11.6x
8.6x10.2x
15.5x
3.2x
1.8x
1.6x
2.0x
1.8x
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
Animal Health Consumables Product Retail Veterinary
Mean EBITDA Multiple Mean Revenue Multiple
D2C Pet Food Funding Analysis
14Note: (1) JustFoodForDogs 2018 round investors were undisclosed; L Catterton investment amount undisclosedSource: Capital IQ, Company Websites, Packaged Facts
Companies in the direct-to-consumer pet food category raised in excess of$100 million since 2018
▪ The Farmer’s Dog represents ~50% of the capital raised, based on it’srecent $39 million financing
Category arrived due to the perceived need for fresh pet food delivery
▪ Capitalizing on the make-at-home and food delivery trends thatpermeate the broader food category
According to Packaged Facts, Human meal kit market was$3.1 billion of sales in 2018
▪ Taps into consumer emotion and supply chain concerns associatedwith mass market pet food
As a generation, Millennials are more concerned aboutsupply chain transparency
Long term potential of the category is favorable
▪ Benefits from the malaise in pet specialty retail
Nearly 20% of pet owners get some form and percentage ofpet nutrition delivered today
▪ Category scaling more rapidly than housebrands owned by leadingecommerce players
While initial market receptivity appears favorable, scaling concerns remains
▪ Initial customer acquisition is universally subsidized and thebusinesses are unseasoned making life-time-value uncertain
Average cost to feed 55 lb. dog per day is $8.50
▪ Production capacity in multiple physical locations that enables morecost effective delivery is difficult from an execution perspective
Production uses USDA facilities and human grade ingredients
Generally involves equipment investment
▪ Due to delivery distance and form factor industry produces morepackaging waste
3FinancingRounds
2FinancingRounds
2FinancingRounds
1FinancingRounds
2FinancingRounds
Dog Food
Dog Food
Treats
Dog/Cat Food
TreatsSupplements
Dog Food
Treats
Dog Food
$49.1
$17.0 $13.0
$11.1
$6.1
D I R E C T - TO - C O N S U M E R P E T F O O D B R A N DEQ U I T Y F I N A N C I N G R A I S E D TO DAT E ( $ M )
Private Placement Volume
15
Private placement velocity and volume has been driven by direct-to-consumer, digital, and ingredient opportunities
Source: Capital IQ, Pitchbook, Cascadia Capital
($ in millions)
Date Total
Announced Funding Source Target Name New Money
Mar-19 RRE Ventures, Freestyle Capital, Lerer Hippeau Ventures Barking Labs Corp. $7.0
Mar-19 DCM, Digitalis Mollybox $13.0
Feb-19 ToroVerde Sera Labs $5.0
Feb-19 Consortium of investors SAS Ynsect $125.0
Jan-19 PeakSpan Capital Locai, Inc. (d/b/a PetDesk) $12.0
Jan-19 Insight Venture Partners The Farmer's Dog, Inc. $39.0
Nov-18 Temasek Holding Private Ltd. InnovaFeed SAA $45.5
Oct-18 Undisclosed Investors JustFoodForDogs Holdings $8.5
Aug-18 KeyBanc Capital Markets PetIQ, Inc. $75.0
Jun-18 Undisclosed Investors MedVet Medical & Cancer Centers for Pets $8.5
Jun-18 Bain Capital Ventures Strategic Pharmaceutical Solutions, Inc., (d/b/a VetSource) $50.0
Jun-18 Main Post Partners Nulo, Inc. $28.4
Jun-18 Undisclosed Investors Agri-Protein Technologies (Pty) Ltd $105.0
May-18 Consortium of investors NomNomNow, Inc. $10.0
May-18 T. Rowe Price Associates A Place For Rover, Inc. $155.0
Mar-18 Miura Private Equity TiendAnimal S.L. $78.8
Mar-18 Consortium of investors Mad Paws Pty Ltd. $5.0
Feb-18 Freshly, Inc, Literacy Capital, White Star Capital Dogmates, Ltd. $7.0
Feb-18 Consortium of investors InnovaFeed SAA $18.4
Jan-18 SoftBank Group Wag Labs, Inc. $300.0
Jan-18 Consortium of investors True Leaf Medicine International Ltd. $8.1
Nov-17 Riverhead Capital Investment Management Co. Ltd. Ruipeng Pet Healthcare Group Co. Ltd. $37.0
Oct-17 Almaz Capital, Y Combinator Petcube, Inc. $10.0
Oct-17 McLarty Partners Destination Pet, LLC $30.0
Sep-17 Canaan Partners Ollie Pet, Inc. $12.6
Sep-17 Sweet Capital Ltd. Dog Buddy UK Ltd. $6.0
Jul-17 IDG Capital Chongqing Epet Technology Co., Ltd. (d/b/a epet.com) $53.0
Jul-17 Clayton, Dubilier & Rice, Hillhouse Capital Group Direct Vet Marketing, Inc. $223.0
Jul-17 Spark Capital A Place For Rover, Inc. $65.0
May-17 Consortium of investors Alphapet Ventures GmbH $11.2
May-17 Consortium of investors PawTree, LLC $7.0
May-17 Shasta Ventures, Forerunner Ventures, Collaborative Fund The Farmer's Dog, Inc. $8.1
May-17 Village Capital Integrated Animal Health, LLC $5.0
May-17 Consortium of investors Calysta, Inc. $40.0
Apr-17 Battery Ventures Wag Labs, Inc. $40.0
Apr-17 CAVU Venures Nulo, Inc. $5.5
Mar-17 Piper PE LLP; Piper V Pet Food UK Ltd $6.1
Mar-17 Riverbridge Partners Freshpet, Inc. $24.6_______________
Max $300.0
Median $21.5
Mean $47.8
Min $5.0
Analysis of Public Company Trading Multiples
16Source: CapitalIQ
Graphs below show median Total Enterprise Value to LTM EBITDA multiples for publicly traded pet companies by segment
Entities included in each comparable company set can be viewed on the slides that follow
A N I M A L P R O D U C T & R E TA I L M E D I A N T E V/ E B I T DA LT M BY M O N T H
V E T E R I N A RY & A N I M A L H E A LT H M E D I A N T E V/ E B I T DA LT M BY M O N T H
10.9x 11.9x 12.4x 12.3x 12.6x 12.4x 11.9x 11.7x
11.0x 11.6x 12.0x 12.4x
Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19
18.2x 17.8x 18.3x 18.0x 18.4x 18.7x 18.5x 19.2x 18.1x 18.5x
20.1x 20.5x
Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19
Public Comps
17Source: CapitalIQ
($ in millions, except per share data) Price Market Enterprise LTM Revenue Growth LTM Margins P/E EV / Revenue EV / EBITDA
Company 03/29/19 Cap Value Revenue EBITDA 1 Year 3 Years Gross EBITDA Multiple LTM NTM LTM NTM
Pet Products
Central Garden & Pet Company $25.56 $1,378 $1,592 $2,235 $201 7.6% 9.5% 30.1% 9.0% 19.1x 0.7x 0.7x 7.9x 7.1x
Freshpet, Inc. 42.29 1,507 1,500 193 10 26.8% 18.5% 46.6% 4.9% NM 7.8x 6.3x 157.4x 52.6x
Oil-Dri Corporation of America 31.14 236 232 266 23 0.2% 0.3% 24.3% 8.5% 37.5x 0.9x 0.0x 10.2x 0.0x
Mean 11.5% 9.4% 33.7% 7.5% 28.3x 3.1x 2.3x 58.5x 19.9x
Median 7.6% 9.5% 30.1% 8.5% 28.3x 0.9x 0.7x 10.2x 7.1x
Pet Retail
Tractor Supply Company $97.76 $11,840 $12,191 $7,911 $879 9.0% 8.3% 34.2% 11.1% 28.3x 1.5x 1.5x 13.9x 13.5x
Pets at Home Group Plc 2.07 1,033 1,202 1,211 110 8.1% 7.3% 47.7% 9.1% 24.8x 1.0x 0.9x 10.9x 7.0x
zooplus AG 111.05 793 783 1,509 6 16.0% 22.1% 25.3% 0.4% NM 0.5x 0.4x 130.6x 37.8x
Mean 11.0% 12.6% 35.7% 6.9% 26.5x 1.0x 1.0x 51.8x 19.5x
Median 9.0% 8.3% 34.2% 9.1% 26.5x 1.0x 0.9x 13.9x 13.5x
Veterinary Medecine
PetIQ, Inc. $31.41 $690 $800 $529 $23 98.2% 37.0% 15.8% 4.3% NM 1.5x 1.3x 35.0x 15.3x
PetMed Express, Inc. 22.78 467 373 286 55 6.2% 7.7% 34.8% 19.1% 13.6x 1.3x 1.2x 6.8x 6.3x
Mean 52.2% 22.3% 25.3% 11.7% 13.6x 1.4x 1.3x 20.9x 10.8x
Median 52.2% 22.3% 25.3% 11.7% 13.6x 1.4x 1.3x 20.9x 10.8x
Public Comps
18Source: CapitalIQ
($ in millions, except per share data) Price Market Enterprise LTM Revenue Growth LTM Margins P/E EV / Revenue EV / EBITDA
Company 03/29/19 Cap Value Revenue EBITDA 1 Year 3 Years Gross EBITDA Multiple LTM NTM LTM NTM
Animal Health
Bayer Aktiengesellschaft $64.59 $60,234 $101,270 $44,429 $8,452 13.1% (4.9%) 61.2% 19.0% 26.3x 2.3x 2.0x 12.0x 7.7x
Eli Lilly and Company 129.76 125,973 131,745 24,556 7,872 7.4% 7.2% 73.8% 32.1% 34.5x 5.4x 5.3x 16.7x 16.5x
Heska Corporation 85.12 659 652 127 15 (1.5%) 6.8% 44.4% 12.1% 99.2x 5.1x 4.7x 42.4x 126.1x
IDEXX Laboratories, Inc. 223.60 19,240 20,116 2,213 577 12.4% 11.4% 56.1% 26.1% 68.8x 9.1x 8.4x 34.9x 31.1x
Neogen Corporation 57.39 2,991 2,744 417 87 7.3% 10.4% 46.5% 20.8% 66.2x 6.6x 6.4x 31.7x 30.9x
Pfizer Inc. 42.47 235,785 259,348 53,647 22,058 2.1% 3.2% 79.3% 41.1% 26.0x 4.8x 4.5x 11.8x 11.1x
Trupanion, Inc. 32.74 1,124 1,110 304 3 24.7% 27.4% 29.4% 1.1% NM 3.7x 3.0x NM 86.7x
Virbac SA 164.09 1,383 1,900 975 133 0.8% 0.6% 66.1% 13.6% 39.4x 1.9x 1.9x 14.3x 12.8x
Zoetis Inc. 100.67 48,198 52,946 5,825 2,176 9.8% 6.9% 67.3% 37.4% 45.7x 9.1x 8.6x 24.3x 20.9x
Mean 8.4% 7.7% 58.2% 22.6% 50.8x 5.3x 5.0x 23.5x 38.2x
Median 7.4% 6.9% 61.2% 20.8% 42.6x 5.1x 4.7x 20.5x 20.9x
Consumer Products with Pet Lines
Church & Dwight Co., Inc. $71.23 $17,518 $19,315 $4,146 $942 9.8% 6.9% 44.4% 22.7% 39.7x 4.7x 4.6x 20.5x 20.0x
Colgate-Palmolive Company 68.54 58,931 64,869 15,544 4,279 0.6% (1.0%) 59.6% 27.5% 28.4x 4.2x 4.2x 15.2x 15.5x
JAKKS Pacific, Inc. 1.01 24 138 568 (12) (7.4%) (8.7%) 27.4% (2.2%) NM 0.2x 0.2x NM 5.4x
Kao Corporation 78.68 38,288 37,118 13,609 2,497 1.2% 0.8% 43.4% 18.4% 32.4x 2.7x 2.4x 14.9x 13.1x
The Clorox Company 160.46 20,565 22,923 6,244 1,296 3.4% 3.1% 43.5% 20.8% 32.1x 3.7x 3.4x 17.7x 16.2x
Unicharm Corporation 33.06 19,724 19,430 6,211 1,131 7.3% (2.3%) 38.5% 18.2% 41.7x 3.1x 2.9x 17.2x 15.8x
Mean 2.5% (0.2%) 42.8% 17.6% 34.9x 3.1x 3.0x 17.1x 14.3x
Median 2.3% (0.1%) 43.4% 19.6% 32.4x 3.4x 3.2x 17.2x 15.7x
Cascadia Capital Overview
19
S E C T I O N I I I
Our Firm
Founded in 1999Cascadia has a successful 19 year history
investment banking professionals
Managing Directors in four cities
transactions completed, with over $15 billion in aggregate value
20
5016OVER315
Headquartered in Seattle, with Managing Directors in Los Angeles, Minneapolis and New York
INDUSTRYEXPERTISE
RESULTSFOCUS
DEALVOLUME
Leading diversified investment bank
• M&A, private placements, advisory services
• Specialized in-depth expertise across multiple industry verticals
• Representing clients in the US and globally, including Europe, Asia and Australia
Experienced team with successful track record
• Cascadia is the investment bank of choice for entrepreneurs and family-owned companies
• Decades of investment banking and operational expertise
• Deep capital markets expertise
Process and Experience Deliver Results
21
We Differentiate Each Process With a
Customized Approach
• We are thoughtful advisors who deliver a tailored process to suit the needs of our clients
• We understand the strategies of the counterparties, enabling us to tell them why they should be interested – allowing Cascadia to drive the transaction and maximize results
Team Members Have
Deep Industry Expertise
• With bankers across multiple industry verticals, we have the experience to offer industry breadth while maintaining sector depth
• Dedicated resource model with comprehensive vertical expertise from Managing Director to Analyst
Our Experience and Approach
Drive Results
• We have experience, industry focus and a differentiated process that drives success
• Our transactions are built upon delivering the best quantitative and qualitative terms with the most desirable counterparty
$10.0+ billion in total M&A transactions closed in the firm’s history
$5.0+ billion in total capital raised in the firm’s history
22
Closed Deals Overview
June 2017
has been acquired by
a portfolio company of
Pet Industry Transaction Experience
Pet Deal Experience
10+ years of industry coverage
17 closed transactions, with a meaningful emphasis on branded companies
Nine deals within the consumables sector
Four transactions in process
$1.4+ billion in total transacted value
$500+ million of in process deal value
~ $100 million in average transaction value(1)
Over 100 indications of interest received on behalf of our clients
Over 200 coverage relationships (company, buyer, investor)
Dedicated pet industry team
23Note: (1) Includes in process transactions