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Investors Best Friend: Pet eCommerce Brands

Aktualisiert: 6. Sept. 2023


In the ever-evolving landscape of business and commerce, certain sectors have proven to be remarkably resilient, even in times of economic uncertainty. One such area that has continued to flourish, capturing the attention of both consumers and investors alike, is the pet eCommerce industry. With pet owners treating their furry companions as cherished family members, the pets category has witnessed a consistent demand for a wide range of products and services. This article delves into the intriguing world of eCommerce M&A within the pets category, exploring the factors that contribute to its unwavering appeal and investment potential.


Spend Resilience


It's a well-established fact that even during economic recessions, pet owners maintain their spending on their beloved companions. From high-quality nutrition and grooming products to specialised services and beyond, the pet industry has exhibited remarkable resilience. This phenomenon can be attributed to the emotional bond between pets and their owners, leading to a sustained demand for products that enhance the well-being and happiness of these four-legged family members.


Continued Interest of Investors


In the wake of economic uncertainties, investors have been seeking sectors that demonstrate stability and long-term growth potential. With tech industries carrying inherent risks and volatility, many investors have shifted their focus to industries that are less susceptible to market fluctuations. This pivot has spotlighted the pet eCommerce sector, which offers a compelling investment opportunity due to its steady consumer demand and proven track record of profitability. As a proof of that, based on an OC&C / Harris Williams analysis the number of deals done in Europe is still above 2020 levels where money could still be borrowed “for free”.

Unlike cash-burning tech startups, pet eCommerce brands present a reliable avenue for investment, making them an attractive proposition in the current M&A landscape. While strategic buyers continue to use M&A to gain market share and to expand their product portfolio, financial investor activity has significantly increased. While over the last 20 years the share of financial vs. strategic investors in the pet sector was 69% vs. 31% the share of financial investors increased to 80% over the last 3 years.



Market Differences


The pets category, particularly in developed markets such as the UK and the US, has witnessed a fascinating expansion beyond traditional pet products. As an example, dog/cat owners in the USA and UK spend on average more than $240 for their pet. This underlines the readiness for innovation in these markets given their consumers’ substantial spend.

Pet owners are now open to exploring new product categories, including supplements, meal toppers, and personalised nutrition advice for their furry friends. This evolution reflects a shift in consumer behaviour, where pet owners are actively seeking innovative ways to enhance the lives of their companions. As a result, the pet eCommerce market continues to experience growth and diversification, setting the stage for enticing M&A opportunities. This can especially be seen in the USA and UK where - based on an OC&C / Harris Williams consumer survey - many pet owners purchased “new” product categories in the last 12 months.

Key Purchasing Criteria


When it comes to purchasing pet products, the discerning pet owner is driven by a set of key criteria. Quality and value are paramount, ensuring that products meet the highest standards while providing good value for money. Additionally, a critical factor that cannot be overlooked is pet enjoyment. Pet owners prioritise products that bring joy and happiness to their pets, further strengthening the bond between owner and companion.

This intrinsic emotional connection underlines the significance of selecting the right products and services, creating a market where customer satisfaction is a driving force. The reward for brands in the space can be very loyal customers, leading to repeat purchases and thereby lower marketing spend. Making customers fans therefore is the key challenge for businesses in the pets category, which is characterised by high competition.


Valuation & Transaction Impact


As the market ebbs and flows, the multiples associated with company valuations have experienced fluctuations. However, the pets category has demonstrated a level of resilience, with the impact on multiples not being as severe compared to other sectors. Despite market challenges, the pets eCommerce segment has managed to maintain its appeal, attracting investors and buyers alike. Valuations can be influenced by a compelling equity story that outlines the brand's long-term potential and strategic growth initiatives. The ability to showcase how future projects will impact growth becomes pivotal in justifying valuation premiums in this dynamic sector.



We have supported pet eCommerce entrepreneurs in their exit successfully and know how to build compelling equity stories. In January this year, we closed a deal with a 10+m revenue brand for which we’ve received LOIs from six distinct buyers, including Private Equity. The following gives an overview of recent key M&A deals in the pet sector. Deal types include high growth DTC investments, branded strategic add-on acquisitions as PE platform and add-on investments.


Conclusion


The world of eCommerce M&A is constantly evolving, with certain sectors proving to be more resistant to economic uncertainties than others. The pets category, driven by the unbreakable bond between pet owners and their companions, has exhibited remarkable resilience. Even during recessions, consumers are steadfast in their commitment to providing the best for their pets, creating a robust demand for a wide range of products and services. Investors, in turn, recognize the value of this stable market, turning their attention to the pet eCommerce sector for reliable investment opportunities.


As the market continues to evolve, the pet eCommerce industry's expansion into new product categories and the emphasis on quality, value, and pet enjoyment underscore the enduring appeal of this sector. Valuations and transaction impact remain nuanced, with a sound equity story serving as a catalyst for securing premium valuations. In an era of economic uncertainties, the pets category stands as a testament to the power of emotional connections and the enduring appeal of enriching the lives of our beloved animal companions.


If you are an entrepreneur in the pet industry, we as Sellside Partners would like to get to know you. Book you a free consultation where we can get to know each other, provide insight into the market environment and help you make informed decisions.



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