You know how you can tell you live in a pretty wealthy country?
When you spend a cumulative $69 billion on your pets as a nation.
According to the American Pet Products Association, that's what Americans spent on Fido and Fluffy last year.
Bob Vetere, president and CEO of the Association, told the Global Pet Expo earlier this year that it's incredible not only to see growth for the pet industry in general, but to experience growth across all categories of the pet industry – with the exception of "live animal purchases," which remained the same.
Talk to any pet owner, and they'll tell you how difficult it is to put a dollar limit on what they'd spend to give their loyal companion a happy life, and it's this outlook that continues to drive growth.
When I first heard that $69 billion number, I was skeptical. But when I mentioned it to my wife, she showed me how much we spent on our cat and dog. And let me tell you! It was a healthy number, and that doesn't even include the occasional cheeseburger I buy the dog.
When I thought about it, I realized my son has a hefty investment in his two pythons, considering the specialized cages and lighting required. And my daughter has a dog with some health issues, and she is constantly complaining about the costs associated with doggie healthcare.
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So it turns out that it's not just crazy cat ladies spending all this money! It's regular people too.
Given all this money spent on pets, there's bound to be a few profit opportunities.
And that's exactly what I want to explore here today...
Invest in One of These Pet Companies, and You'll Even Withstand a Market Downturn
Anytime we can get invested in companies that provide something Americans love and will buy regardless of the economy, there is usually a pile of money to be made by patient long-term investors.
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Indeed, when I looked closely, I saw that there has been quite a bit of M&A in the industry as companies like General Mills Inc. (NYSE: GIS), J.M. Smucker Co. (NYSE: SJM), and Nestle S.A. (OTCMKTS: NSRGY) made moves to expand their pet-related offerings.
There were 67 pet-related M&A deals in 2016, 67 in 2017, and so far this year there have been 50, which is a little ahead of last year's pace.
Capstone Headwaters is an investment bank that does business in pet M&A advisory services, and they estimate pet-related M&A will stay at high levels for the foreseeable future. In their third-quarter update on the pet industry, they point out the following:
"With such a wide range of products, the competitive landscape is highly fragmented, and no company competes across all categories. Rather, most are highly specialized within one or two specific areas. Due to this high degree of fragmentation and the continued emergence of the online channel, it is expected that merger and acquisition (M&A) activity will remain near record levels."
It's not just strategic buyers looking to expand their product line getting into the pet business, though. It is no great secret that I pay very close attention to what private equity investors are buying, and they have been moving aggressively into the pet business. London-based BC Partners bought PetSmart back in 2014 and have since added pet e-commerce company Chewy when it was purchased by PetSmart in 2017.
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Industry leader KKR & Co. L.P. (NYSE: KKR) is also in the pet space in a big way. In December, they bought PetVet. This is a fascinating company that is rolling up veterinary practices into a single large company. The company has more than tripled since 2014, as they allow local practices to gain purchasing power and access to cutting-edge technology and services that just are not available to small local practices.
Carol Franks is a managing director at SDR Ventures, a Denver-based investment bank that also counts the pet industry as a specialty. Here's what she recently told PetBusiness.com:
"It started when investors realized that the pet industry is recession resistant. In 2008/2009, they looked back on the growth that the pet industry continued to have, even as the rest of the retailing and manufacturing world was not thriving, the pet industry was. So, about four or five years ago, the private-equity world really started focusing on pets."
There are certain industry groups that I keep track of carefully. I have legal pads dedicated to these groups, where I make a note of valuations and M&A levels in the companies. The pet industry now has its very own legal pad. I am tracking veterinary clinics, pet medicine delivery companies, pet-related pharmaceutical firms, pet supply brick-and-mortar retailers, and even pet health insurance companies. I want to be ready to buy these furry friend provider companies when I get them at a bargain price.
One thing I noticed as I put together the initial pages was that most of these are really high-quality companies. Their balance sheets are solid as a rock, and the business conditions are excellent for most of them. I am monitoring all of them closely for future opportunities.
I love an industry group with excellent fundamentals, strong growth drivers, robust M&A activity, and private equity interest almost as much as I love my dog. Pet companies offer precisely that combination.
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The post How to Get Your Piece of the $69 Billion Pet Industry appeared first on Max Wealth.
About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of Peak Yield Investor.