JAB sets high-water mark in vet M&A, takes victory lap for Quad-C’s Compassion-First

  • EV implies Ebitda multiple >19x, topping recent sector trades
  • Longstanding relationship between Compassion-First CEO and JAB CEO said to lay foundation for deal
  • Quad-C formed vet chain in ’14 alongside CEO John Payne; PE shop typically makes equity investments in $35 – $125 mln range

Quad-C Management appears poised to score a handsome return on Compassion-First Pet Hospitals, after JAB Holding unexpectedly outbid financial sponsors to take home the latest highly sought-after asset in animal health.

JAB, which invests on behalf of Germany’s Reimann family, agreed to buy the network of specialty, emergency and general hospitals for a total enterprise value of $1.22 billion, including post-closing tax benefits, a Feb. 25 announcement said.

Top-of-range multiple

The price tag sets a high-water mark for vet-hospital transactions, topping the 17x to 19x range at which sources have said assets of scale have recently traded.

The valuation implies an EV-to-Ebitda multiple of 19.2x, based on the target’s north of $63 million in adjusted LTM Ebitda, one of the people said. The multiple is closer to 20.2x when a 2018 Ebitda figure of about $60 million is applied, the other person said.

The deal follows a Jefferies-run process that the people characterized as competitive and encompassing around four financial sponsors in addition to JAB in its late stages.

In fact, the sale to JAB comes as somewhat of a shock to the PE community, one of the people said.

JAB, entering the process in recent weeks, topped sponsors’ bids by more than $100 million, this person said. Meanwhile, the few strategics that took an early look at Compassion First couldn’t come close to matching sponsor values and were not serious contenders, the person added.

JAB, which this person said is generally viewed as a wild-card buyer, is one of the more active family offices in direct investing.

The belief is that a longstanding relationship between Olivier Goudet, JAB managing partner and CEO, and John Payne, the vet chain’s founder and CEO, laid the foundation for the Feb. 25 transaction, the person said.

Payne is former CEO of Banfield Pet Hospital, of which Mars, parent of Snickers candy bars among other brands, first invested in 1994. Payne also previously led Bayer Animal Health North America as president.

JAB’s Goudet is former EVP and CFO of Mars, as well as the past independent adviser to the company’s board. Fabien Simon, who joined the JAB partnership in January amid the departure of Partner and Chairman Lambertus Becht, also comes from Mars.

Quad-C initially partnered with Payne in September 2014 to form what was then called Veterinary Specialists of North America. The Charlottesville, Virginia, firm took a controlling interest in the company.

Middle-market-focused Quad-C typically makes equity investments in the $35 million to $125 million range in companies with enterprise values of $75 million to $400 million.

In connection with the transaction, existing former hospital owners reinvested in Compassion First, including management and Payne.

Compassion-First, Tinton Falls, New Jersey, offers a mix of specialty, emergency and general medicine veterinary care across 41 hospitals and treatment clinics spanning 13 states.

JAB is investing through its JAB Consumer Fund and directly from JAB Holding Co. The private investment firm invests the wealth of Wolfgang, Matthias, Renate and Stefan Reimann.

For JAB, the transaction expands its portfolio beyond the various retail outlets and brands it has backed in the food and beverage and beauty and apparel categories.

That includes Dr. Pepper Snapple Group, Pret A Manger, Panera Bread, Krispy Kreme Doughnuts, Peet’s Coffee and Coty, parent to the Calvin Klein and David Beckham perfume brands.

Sector Activity

In recent large market activity, Oak Hill Capital Partners in June 2018 prevailed in the process for VetCor, winning the Jefferies-run process for the veterinary-hospital-network.

Nordic Capital was among finalists in the process expected to command a valuation north of $1.5 billion, Buyouts reported at the time.

Nordic the same month sold AniCura to Mars, making 7x its money, Buyouts reported. The deal valued the European chain at close to €2 billion ($2.36 billion) including debt.

KKR in December 2017 bought PetVet following a narrowly run sponsor-focused sales process, while Mars in September 2017 bought VCA for $9.1 billion.

OMERS Private Equity in June 2017 acquired a minority stake in Ares Management’National Veterinary Associates.

In the middle market, Chicago’s Waud Capital Partners in October launched Heart + Paw, partnering with ex-Banfield Chief, Vincent Bradley.

In December 2018, Brown Brothers Harriman Capital recapitalized Ethos Veterinary Health, concluding a sales process conducted by Western Reserve Partners, a unit of Citizens Capital.

Elsewhere, Covetrus, created through the recently completed merger of Clayton, Dubilier & Rice-backed Vets First Choice and the animal-health business spun off from Henry Schein, began trading Feb. 22 on Nasdaq.

CD&R’s on-paper return equated to about 4.6x its investment to date in the veterinary-technology company, Buyouts reported.

Representatives with JAB and Quad-C declined to comment, while those Compassion-First didn’t return requests for comment.

Action Item: Reach out to Quad-C at (434) 979-2070

Correction: This story has been corrected to reflect accurate details of Mars’ investment in Banfield. A previous version misstated price and date.

Update: This story has been updated to clarify that Compassion-First’s $1.215 billion EV is inclusive of tax benefits. Detail on Mars’ acquisition of VCA added.