The pet sector is drawing a significant amount of attention with Mars making its first foray into the UK and European veterinary markets via two recent, substantial investments. The pet sector, more generally, has been favoured by PE investors and lenders due to its resilience through the cycle and its high growth trajectory in recent years.
Underlying themes of pet humanisation and a move towards product premiumisation have driven a number of recent PE investments in businesses from specialty pet retailers to premium food producers and vet roll-out plays. These investments have received strong support from lenders with leverage packages over 5.0x provided for assets at the higher quality end of the credit spectrum.
Lenders see the non-discretionary nature of spend, subsequent resilience through the cycle, strong margins and cash generation and sticky customer bases as core pillars to their credit thesis. This has even allowed lenders to get comfortable with pet retail, as demonstrated by the recent acquisition of Jollyes by Kester through a management buy-in, despite strong headwinds in the broader UK retail sector.
With the pet sector still relatively fragmented, demand for these assets is expected to continue. How high valuations go and how aggressive lender terms become to enter this favoured market will be interesting to watch.
What is the attraction of this market? Quite simply, its remarkable growth prospects.