Quarry Capital Does First Deal From First Fund

Quarry Capital has proven that with a little perseverance, a first-time fund can do its first-ever deal in even the most volatile deal-making market.

Granted, it’s a very small deal. But the firm is happy to take Royal Pet Supplies off its owners’ hands. Quarry will acquire 100% of the family-run company and its owners will retire.

Brent Johnstone, Managing Director with Quarry Capital, said that while the pet supply industry is not necessarily “recession-proof” it is “recession-resistant.” Royal Pet Supplies distributes pet supplies to independent pet shop operators, who he said have been stable through the recession. “People are still spending money on their pets because it is a place of comfort and a source of happiness.”

For its part, Royal Pet Supply has neither shrunk nor grown, which is where Johnstone said Quarry Capital sees opportunity. There’s also product and geographical expansion. Royal Pet only distributes its own products on the East Coast, using a common carrier for more inland customers, but Quarry Capital may expand its in-house distributing. “The company has been in the business for 60 years, and it has wonderful relationships. We felt we could grow its footprint,” he said.

I asked Johnstone about the fate of Mom and Pop pet shop operators. At a recent conference Peter Nolan of Leonard Green Partners, mentioned the strong performance of Petco, its pet supply chain portfolio company. I wondered if companies like Petco might be stealing market share and with it, Royal Pet’s customers. Johnstone said the specialty niche has a different value proposition, since the store’s owners have deep product knowledge in niche area. “It’s especially important in verticals like, say, fish, where the starting fish owner needs to know how to keep their fish alive. They’ll kill their fish if they don’t know what they’re doing.”

It’s not unlike the special attention Johnstone and his partner Darren P. Bonnstetter, formerly of AlixPartners, will be able to give to the business, as it is their only portfolio company to date. The firm paid for the deal with equity from a small committed pool and capital from Wells Fargo Business Credit. Quarry Capital has a mix of committed capital and deal-by-deal capital, often from the same investors. Quarry continues to raise money for its committed fund. The firm plans to do another two or three deals in the next few years to build up a track record, Johnstone said.