Demand for animal health products and services rises, driving deals
At least two-thirds of U.S. homes have at least one pet, and people are spending more money on their pets than ever, driving M&A across the entire pet care sector. In 2019, Elanco Animal Health (NYSE: ELAN) announced plans to buy pet therapeutics company Aratana Therapeutics (Nasdaq: PETX) for up to $245 million. Aratana develops medicine for dogs and cats. The company makes Galliprant tablets, to treat osteoarthritis in pets. The deal will allow Elanco to integrate the Aratana portfolio of pet therapeutics into their companion animal therapeutics business, including a pipeline of therapeutic candidates and two marketed products. “As a newly independent, premier animal health company, we believe that Elanco would help expand our portfolio with their substantial resources and presence within the companion animal segment,” says Aratana CEO Craig Tooman.
It is not just strategic buyers that are active in dealmaking in the pet industry. PE firms that focus on animal care are raising new funds. Shore Capital Partners has raised its third healthcare fund at $293 million in 2019. The fund will invest in mircrocap businesses that have up to $100 million in revenue, including animal healthcare. In 2017, Shore Capital invested in Midwest Veterinary Partners, which owns the Lake Huron Veterinary Clinic in Michigan. The veterinary market is ripe for consolidation because there is an aging population of veterinarians who want to sell out of their practices and an increasing number of new veterinarians with high student debt and an increased desire to work as veterinarians, but not necessarily do the administrative work of owning a practice.
The U.S. pet insurance sector is fragmented. According to consumer financial services firm Synchrony (NYSE: SYF), the pet health insurance industry is expected to double by 2022. In 2019, Synchrony acquired pet health insurance company Pets Best. The target offers health, wellness and personal care credit products that can be used to pay for a variety of healthcare expenses including veterinary care. As the cost of pet care increases, pet owners are increasingly seeking better access to care. The acquisition will expand Synchrony’s CareCredit platform, and will allow CareCredit to offer more payment options for veterinarians and pet owners. “More people are including pets as part of their family,” says CareCredit CEO Beto Casellas. “With Pets Best, we now have unique insight into the fast-growing pet health insurance market and can offer pet owners more choices for their pet’s care.”