Q3 INDUSTRY UPDATE
Key M&A Transaction
Q3 saw Roark Capital effect the merger of Pet Valu, North America’s third-largest pet specialty retailer, and Pet Supermarket, the largest community-based pet specialty retailer, creating the largest small-format, neighborhood, pet-specialty retailer in North America. Roark Capital initially took Pet Valu private in 2009. In early 2015, Pet Valu acquired the Jack’s Pets chain of 32 stores and later that year Roark acquired Pet Supermarket. The newly combined entity is known as Pet Retail Brands, and has over 900 stores in the U.S. and Canada and approximately $1 billion in sales. Both retailers have been growing fast and expect synergies from shared infrastructure, merchandising services and other resources.
We expect to continue to see the consolidation of smaller pet-specialty retailers. Recently, Chuck and Don’s, a top-25 retailer of high-end pet food and supplies with over 30 stores, announced that it is considering acquisitions for the first time in its history.
According to the American Pet Products Association (APPA), consumers will spend $62.7 billion on pets in 2016. With continued pet market expansion, more and more companies are investing in technology and software for both pet parents and pet industry players.
Pet care businesses, such as groomers and boarding facilities, are using online technology to schedule appointments, send appointment reminders via text or email (which can reduce no–shows by over 50%) and send automated reminders for follow up bookings and to re-engage customers. Consumers also are using search engines and review sites outside of normal business hours to schedule over 40% of appointments. We are seeing interest continue to rise in this segment. For example, Rover, which connects and books dog sitters and walkers with pet parents, recently raised an additional $30 million from existing investors Menlo Ventures, Madrona Venture Group and Foundry Group.
On the hardware side, the wearables market for pets is expected to reach nearly $1 billion by 2022, according to Grand View Research. This is coming from startups looking to gain traction in the emerging pet tech category, including GPS monitors by Nuzzle, Gibi, Pod and Wuf and health/fitness trackers by PetPace and Voyce. In addition, traditional pet companies are getting in on the action, such as Mars via its acquisition of Whistle. The most surprising acquirers are the old-line electronic manufacturers. Acer, the global hardware and electronics company, announced that it is entering the pet accessories market with its recent acquisition of Pawbo, a Taiwanese maker of dog and cat products. Pawbo’s first product is an interactive pet camera, microphone and speaker that enables the user to “converse” with his or her pet, control accessories and even capture photos for social media. Targeted at millennials, a key demographic in the market, Pawbo will soon add activities and treat dispensers.
From a consolidation perspective, pet tech dominated pet M&A activity in Q3 with 12 transactions, nearly as many as all other segments combined.
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