While private equity firms fight like cats and dogs in the surging pet care sector, several shops are looking for related opportunities down on the farm. Agricultural backers say PE is underinvested in a global market transforming to feed a growing world population sustainably.
Private equity firms such as Shore Capital Partners, KKR (NYSE: KKR), TSG Consumer and EQT AB have bet billions since the pandemic on veterinary practices, specialty animal hospitals, pet insurance services and other services related to the “humanization of pets.”
Far less PE attention has been paid to farm animals. A slowly growing number of shops see that as an opportunity.
“It starts with just the sheer fact that we only have a finite amount of arable land in the world and we’ve got a lot of mouths to feed,” Chicago-based Granite Creek partner Jim Clark says.
Then there are rising consumer and regulatory sustainability demands, which are driving technological innovation. Agricultural-focused companies are launching or retrenching.
“There’s been a lot of reevaluation of practices in the supply chain, closer to the farm rather than the table,” Clark says. “Because of that, there are lots of smaller companies trying to do things in a new way in support of these overall macro trends and who need capital.”
Earlier this month, Granite Creek’s Veterinary Pharmaceutical Solutions platform made its first acquisition, investing in Diamond Animal Health, a generic drug and vaccine maker. The shop is planning several more acquisitions to care for an array of livestock, including beef and dairy.
VPS provides veterinarians with medicines administered to newly born livestock, particularly pigs. The medicines are packaged in a specially designed delivery system that makes injecting pigs, chickens and other livestock more efficient.
Granite Creek considers itself a generalist and usually invests between $10 million and $30 million in each transaction. It targets companies with $25 million to $100 million in revenue and Ebitda between $3 million and $15 million.
Granite Creek also has a separate arm investing in farmland, Moraine Farmland Partners.
Granite Creek closed its third fund in November — oversubscribed $300 million FlexCap III — which the firm put to work investing in two lower-middle-market companies: commercial printer Salem One and bowling alley entertainment center operator Pinstripes.
Granite Creek plans additional add-ons to its VPS platform to expand the types of livestock it can treat.
Polaris Market Research estimates the animal health market size at $60.7 billion and anticipates it will grow to $149 billion by 2030.
Private equity firms are also eyeing opportunities in precision agriculture, which uses technology to optimize crop yields while minimizing environmental impact.
Farming has always been a tricky investment with its own set of risks, including weather events, disease outbreaks and commodity pricing swings. Few PE shops have historically invested in the sector. But evolving consumer tastes are attracting a growing number of PE shops from small business backers to a Canadian pension giant are making bets down on the farm.
CPP Investments, one of Canada’s largest pension funds, has invested in Zenex Animal Health, an India-based animal health business focused on livestock and poultry segments. The investment arm of the Canada Pension Plan has also invested in Independent Vetcare Group, a U.K.-based veterinary services firm with operations across Europe.
Raleigh, N.C.-based NovaQuest Capital Management has invested in four animal health companies.
The Effingham, Ill.-based Open Prairie Rural Opportunities Fund, which holds a U.S. Department of Agriculture license as a Rural Business Investment Company has made several $2 million to $8 million investments in small livestock care companies.
“The agricultural cycle can require patience, but the developments are promising,” says Capital Group analyst Gigi Pardasani. “I believe these are multi-year shifts that long-term investors should have on their radar.”
Have a livestock health play? Contact Clark at [email protected].
