The Pet industry Specialist

Issue #15

July 25th, 2023

Quick Hits

• Time flies - Sometimes you need a reminder of how precious your time with your dog is.

• This is how you celebrate a win - Tennis player Pedro Cachin celebrated his first career title with none other than his BFF.

• Indoor water park - A doggie door, a hose, and a lot of water- is a must-see video.

1. Introduce yourself and tell us more about your journey as an operator and a banker?

My complete bio is here: https://birdseyeadvisory.com/carol-frank/

I am the only M&A (Mergers & Acquisitions) advisor in the U.S. specializing exclusively in the pet industry. One of the most unique aspects of my background is that I have walked in my client’s shoes, having spent 20 years as an owner/operator in the pet industry.

2. You often help entrepreneurs get a return on a business they have built for years (you have also done it yourself). They say hindsight is 20/20. What are some things you think business owners should consider from the very start to help maximize their proceeds down the road?

• Invest in a robust accounting program and if the owner isn’t a financial person, find a great outsourced accountant to help keep the books and records.

• Focus on building strong gross margins. It’s not just about revenue – profitability is extremely important to investors/buyers.

• Having a “better or different” product goes a long way. Our industry is full of copycats and if all you are doing is competing on price, which is just a painful race to the bottom. If you can get any type of patent, copyright, or trademark, that goes a long way toward building value.

3. What are some of the current trends you are seeing in the pet industry?

The biggest one I am seeing is a shift from feeding kibble to feeding alternative diets such as raw, gently cooked, or air-dried.

Interactive/foraging toys and accessories are also a growing category.

4. What are the things you think potential buyers value most about businesses in the pet industry? about the founders/teams who run them?

In the 14 years I have been doing pet M&A, I’ve come to realize that buyers place significant value on:

• Strong gross margins (above 40% in almost all cases, and above 50% for DTC businesses).

• Double-digit year-over-year growth.

• No one customer comprising more than 20-25% of the business.

5. Both from your experiences and from some of the businesses you have helped, what are your top do’s & don'ts:

• Get important contracts in writing. Verbal agreements are only worth the paper they are printed on.

• When using an outsourced manufacturer, best not to put all your eggs in one basket. Identify alternative options and have them either already deployed or ready to go in case things go south with your current vendor.

• If an owner eventually wants to sell and exit, it’s important to have someone already identified and trained in the business that can take over. Buyers find that extremely important and will allow for a wider pool of buyers.

• Wartime food - Kormotech, a Ukrainian pet food manufacturer is looking to expand.

• Mascotte raises $1.2M - Miami startup Mascotte just raised their pre-seed round to develop tools for veterinarians.

• Vet tech shortage - Animal Humane Society decides to create their own program as vet tech shortages are hitting nationwide.

• Seeking experts - Global Pet Expo is looking for speakers interested in presenting during its 2024 Global Learning Series educational track.

• Betting on wet food - Kemin Industries recently launched its first-ever wet pet food pilot plant.

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Every Single Time!

• 3 months at sea - A sailor and his dog miraculously survived 3 months out at sea drinking rainwater and eating raw fish.

• Cat of the Year - Zebby the cat has won an award for helping his deaf owner by alerting her to sounds around the house.

• You don’t forget family - A new study suggests dogs remember their litter for up to 2 years after separation.

• More progress - The slaughter of dogs and cats on the Indonesian island of Sulawesi is coming to an end.

• Heading out for a swim? - Here are a few tips to keep your dog safe.

• Not all dogs are built the same

• Snake on a train - Not a sequel, just a casual snake slithering through the cabins.

1. How Important is the knowledge of finance/accounting when building a business in the pet space?

I think it is critical to the success of a business. If a founder doesn’t have a financial background, there are “boot camp” courses that can be taken to provide a basic understanding of accounting/bookkeeping.

2. What sources of capital help founders launch and scale businesses in the pet industry?

If the company is early stage, the options are mostly limited to:

• Owner capital

• Friends and Family

• Credit cards

• Crowdfunding

If the idea is completely revolutionary and there is proven consumer demand, sometimes founders can raise outside capital, but it’s highly unusual.

3. When should a founder consider bringing on a team member dedicated to finance/accounting/business?

It’s very much situation dependent. If the outsourced accountant is spending lots of time on the business, it might prove less costly to bring someone in-house. I usually see this starting to happen when a company reaches $5 million+ in revenue.

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Finally, What kind of sports cars do cats drive?

Fur-arris.

See you next week!

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