Differentiated Pet Food Brands Fetch High Multiples: Guidance for Sector Entrepreneurs

Jun 2021

For investors, the recession resilient nature of the pet sector and its strong performance through multiple economic cycles has long been notable. Most recently, the pandemic solidified the sector’s resilience through strong tailwinds in pet ownership and pet spending—including the humanization of pets as owners spent more time with them and a growing middle class that is willing to spend more.

From branded food to consumables to pet services, investors are actively pursuing opportunities from early-stage growth of all scale including both early-stage growth brands and mature pet platforms. For entrepreneurs with a desire to sell, a range of factors can help set branded food businesses apart from the crowd.

Summary

1

 Staying true to the brand ethos
As the barriers to entry lower and the branded pet food market grows more crowded, brands that will emerge as true winners are those who stay true to their brand ethos and long-term vision. Ensuring consistent brand positioning across channels and markets and leveraging marketing spend that builds brand recognition are key drivers for early success.

2 

 Maintaining supply chain transparency
More than ever before, pet owners are paying close attention to the products that their companion pet ingests. Consumers are demanding access to information about the quality of products, where they come from (i.e., traceability) and the facilities in which they are manufactured. As many brands explore contract manufacturing, it is critical to maintain a level of transparency, from the sourcing of the ingredients to how it reaches the bowl, for consumers who understand that their pet’s ingestibles are directly tied to lifespan and the quality of their pet’s life.

3 

 Ability to win online
With the acceleration of the shift online driven by the pandemic, brands that demonstrate they have the team and ability to win online and compete on Amazon and Chewy will be well-positioned and can set themselves apart from competitors. Brands that are truly differentiated exhibit attractive online metrics, including impressive customer review scores, subscriber bases, return on ad spend, weekly sell-through, buy box percentage and number of customer reviews compared to competitors.

4

 Proprietary direct-to-consumer
Brands that invest in their own D2C infrastructure can often have a leg up over brands reliant on platforms like Amazon. Though an investment in D2C can be material, brands with these capabilities can get access to better and more timely consumer data, ultimately leading to more efficient marketing, accelerating the growth of a brand and higher profitability in the long-term.

5 

 Penetrating key international geographies
Having meaningful revenue across a few geographies is typically more attractive to buyers than having lower sales across many geographies. As brands attempt to expand globally and unlock new markets, many are using a distributor model. Partnering with reputable and trustworthy distributors that can support your brand as it grows is critical and securing non-exclusive distribution agreements provides flexibility for buyers during negotiations in an M&A process.

6 

 Exhibiting sustainable long-term growth
The growth of a pet food brand will evolve over time. Brands will often experience high growth in their earlier years as they invest in growing their brand and building their consumer base. As brands reach a certain scale, buyers will focus in on long term sustainable growth that signals the brand is poised to continue to grow its market share. When marketing efforts are dialed back, brands must be able to retain attractive revenue growth combined with an expanding, loyal consumer base (i.e., attractive LTVs). Understanding that many high growth pet food brands have high marketing spend and as a result, lower profitability, investors will need to see a credible path to sustainable EBITDA margins in excess of 20% in the near term to maximize value today.

7 

 Proven channel expansion strategy
Depending on the stage of a pet food brand’s growth, expansion into new channels will be an important growth strategy. Demonstrating to investors that new channel expansion will not disrupt demand in current channels can help mitigate risk and also add creditability to a brand’s long-term forecast, ultimately driving transaction valuation. For example, implementing initiatives such as exclusive product launches / lines for incumbent channel partners can mitigate their concerns as a brand seeks to penetrate additional channels to broaden its distribution.

Contributors

David Houser

Managing Director

Chicago

I take a long-term approach to building relationships and understanding clients' businesses in order to provide timely and relevant advice.

Alex Masters

Managing Director & European Co-head of Consumer

London

Through honest advice, passionate client service and hands-on execution, I strive to deliver outlier results for my clients.

Christopher Petrossian

Managing Director & U.S. Co-head of Consumer

Los Angeles

Ludovic Rodie
I partner with entrepreneurs and managers with a hands-on and transparent approach at each key step of the process to help them achieve their strategic goals.

Ludovic Rodié

Managing Director

Paris

I appreciate the importance of every transaction I work on for each of my clients, and take pride in leading all aspects of deal execution to drive the best results possible.

Charles Walder

Managing Director

Los Angeles

Cunningham Tom
I listen carefully to each client in order to fully understand their business and objectives so that I can help in crafting the right solution for the particular situation.

Tom Cunningham

Director

London

Kyle Perreira
I am driven by the opportunity to work alongside business owners and management, guiding them through strategic alternatives in order to achieve their goals.

Kyle Perreira

Director

Los Angeles

Meet Professionals with Complementary Expertise

It’s extremely rewarding to work in one of the largest and most diverse global business sectors helping support clients to realize their goals.

Matthew Lee

Managing Director, Head of UK & European Co-head of Healthcare

London

Gaurav Marathe
The opportunity to advise accomplished business professionals and be part of their growth story and value creation is what keeps me inspired to work in this industry

Gaurav Marathe

Managing Director | CEO India

Mumbai

Roderick O'Niell
My goal is to bring the best of Lincoln to each and every transaction, ensuring the topmost outcomes for our clients.

Roderick O’Neill

Managing Director & U.S. Co-head of Healthcare

New York

Emily Wildes
I am passionate about creating tailored sale processes for each of my clients to meet their individual needs, and then executing the process tirelessly to achieve the best price and terms for the selling shareholders.

Emily Wildes

Managing Director & U.S. Co-head of Healthcare

Chicago

Related Perspectives

Lincoln International Managing Directors Recognized as Emerging Leaders

Lincoln International is pleased to share that The M&A Advisor named Managing Directors Adam Gifford, Brian Goodwin, Eddie Krule and Scott Molinaro as recipients in the Emerging Leaders Awards. These… Read More

Food & Beverage Market Update Q1 2024

The M&A market remained somewhat challenged during the first quarter; however, we experienced improved dealmaking conditions.

Consumer, Business and Economic Trends Align to Drive New Interest in Recommerce

Back in 2021, the recommerce industry seemed to have finally hit its stride, with the sector experiencing a surge in transactions, valuations and deal sizes. At the brink of becoming… Read More

The Fitness Investment Landscape

State of the Fitness Market: presented by L.E.K. Consulting Fitness Market Stabilization and Return to Growth Few industries were as negatively impacted by COVID-19 as the in-person fitness industry. Deemed… Read More

View All Perspectives

Recent Transactions in Consumer

Lincoln International advised Founding shareholders and GIMV on the refinancing of Joolz

Consumer

Lincoln International advised Odewald KMU on the sale of Karl Schmidt to Argos Wityu

Consumer

Lincoln International advised Wellness Pet Company on the sale of a production facility in Mishawaka, Indiana to United Petfood

Consumer

Lincoln International advised No Man's Land Foods on its sale to Bansk Group

Consumer
Bang Energy Monster Energy 2023

Lincoln International advised Bang Energy on its agreement to be sold to Monster Energy

Consumer

Lincoln International advised CapVest on the acquisition of Rechochem from H.I.G. Capital

Consumer
22nd Century Group GVB Biopharma Specialty Acquisition Corporation 2023

Lincoln International advised 22nd Century Group on the sale of GVB Biopharma to Specialty Acquisition Corporation

Consumer

Lincoln International advised Best Friends Pet Care on receiving a growth investment from Turning Rock Partners

Consumer
View All