Pet projects result in large deals

By Gareth Iley, partner at Clearwater International

We’ve seen the sunshine and the World Cup bring communities out together…World Cup fever spread across the UK with It’s Coming Home reaching number one in the charts once again, 22 years after its original release, and an estimated 30m pints drunk during the four week run.

Whilst hopes were dashed in the semi-final, the Three Lions definitely united and uplifted the country.

Post World Cup its back to business as usual, and in the world of M&A volumes were down in June in the Midlands; the lowest actually since the start of the year. However there has been a number of interesting deals from some large corporates.

Mars makes a play for the UK

Gareth Iley, partner at Clearwater International

It is suggested that as many as two-thirds of pet owners now view their pets as members of the family; humanisation has led to increased spending on pets’ welfare and increasing the need for a wider range of products and services, including veterinary services.

Businesses in the space are therefore becoming increasingly attractive as pet owners seek to ensure their pets are kept healthy.

Confectionery and pet food conglomerate, Mars, owner of well-known pet food brands Pedigree, Whiskas and Royal Canin has been acquiring heavily in the space, having first made a play for the market in September 2017 with the €8.6bn acquisition of US-based VCA (Veterinary Centers of America). In June this year Mars purchased Solihull-based veterinary practices group Linnaeus Group, from PE firm Sovereign Capital, extending its offering in the market across Europe.

The Linnaeus Group was established following Sovereign’s 2014 platform investment in Willows Veterinary Centre and Referral Service. At the time of the investment the business operated from a single hospital in the West Midlands employing approximately 120 staff. Through a buy and build strategy, Sovereign supported over 20 acquisitions, growing the business from one to 87 sites, the team from 120 to 1,400 people, and increasing EBITDA by more than 700%.

Veterinary services have, in particular, clearly benefitted from the trend of humanisation. Historically, the market was highly fragmented with a large number of smaller practices, but in recent years we have seen a number of PE players, such as Sovereign, enter the market with ambitious buy and build strategies.

As consumers continue to enhance the treatment of their pets we expect the sector to remain a hotbed of M&A activity.

Eddie buys again

Supply chain, transport and logistics firm, Eddie Stobart Logistics (ESL) may have only floated a year ago – having been spun out of Stobert Group in April 2017 – but the company already has a market cap of €600m. ESL has been on an M&A spree, acquiring four companies; e-fulfilment specialist iForce, freight service Speedy Freight, driver services company Logistic People, and just last month, The Pallet Network (TPN).

Sutton Coldfield-headquartered TPN, founded in 2000, provides pallet distribution services around the UK and Ireland, comprising over 100 regional hauliers. The deal, which values the business at £52.8m, marked an exit for PE firm LDC which backed the MBO of TPN in 2007, and supported a refinance in 2016, advised by Clearwater International.

By acquiring TPN, this positions ESL in an attractive segment, in which it currently does not operate and has grown at a significantly greater rate than the wider logistics market over the last three years – in the UK alone, pallet network volumes grew by 6.3% in 2017.

We expect to see continued growth in this space, driven by strong underlying market trends which include the shortening of supply chains with increasing demand for fast delivery, and the ability to offer the flexibility of pallet sizes, including half and quarter pallets.

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