KKR validates veterinary sector with PetVet buy

  • Jefferies ran narrow auction for PetCor
  • Investor eyes may shift to PE-backed VetCor
  • Seller OTPP bought company 3 years ago in reported $440 mln deal

KKR is buying PetVet, a deal that ought to fuel even more sponsor interest in the growing pet-care universe.

The deal comes about three years after Ontario Teachers’ Pension Plan bought its majority stake in PetVet, which operates general, specialty and emergency veterinary hospitals.

The previous deal reportedly valued PetVet at about $440 million, leaving former backer L Catterton and CEO Gino Volpacchio with minority investments in the company.

Golub Capital in June provided $675 million in financing to PetVet.

Terms of the latest trade weren’t disclosed, and while OTPP declined comment, the sale seems to mark a strong return for the pension fund.

PetVet’s hospital network has grown more than fourfold to 125 locally branded hospitals today in 22 states, from 30 offices in 2014.

The sale to KKR, which has deployed billions in healthcare this year, follows what two sources described as a narrowly run sponsor-focused sales process for the Westport, Connecticut, company.

The Jefferies-run auction was expected to be preempted, one of the sources previously said. Another previously said the auction could ultimately produce a multiple of EBITDA in the high-teens based on recent activity in the space.

KKR’s move isn’t surprising given previous investments including Big Heart Pet Brands, the largest stand-alone pet food and snacks company prior to its sale to J.M. Smucker, and Pets at Home, the U.K.’s largest pet-supply retailer and second largest veterinary-services provider.

Jefferies has scored much of the advisory work in the veterinary space in recent years. The investment bank advised National Veterinary Associates on its July 2014 sale to Ares Management, and again in June, when OMERS Private Equity made a minority investment in the company.

The firm also advised VetCor Group in April 2015 when the company was recapitalized by Harvest Partners and Cressey & Co.

While the timing may still be a bit early for a return to market, investor eyes are likely to shift to VetCor following the PetVet deal, one of the sources noted. The company operates 250 hospitals today, nearly double the 137 that it operated at the time of the 2015 recap.

The space is commanding more interest from not only healthcare-focused firms but consumer-oriented PE that can give vet hospitals some of the retail attention they need, one source noted.

The investment thesis around vet care has also garnered the interests of strategics, most notably Mars. The parent of Snickers candy bars diversified further into the sector in January, when it agreed to spend $7.7 billion on animal-hospital chain VCA Inc.

The vet segment is still in its reasonably early stages, with big opportunities to grow both organically and through consolidation. Consumers’ humanization of pets continues to drive demand for the services of these companies, while a lack of regulatory risk and litigation also makes for a nice PE investment.

Action Item: Check out the rest of KKR’s portfolio here: http://www.kkr.com/businesses/kkr-portfolio?page=Private_Equity

Correction: A prior version of this story incorrectly stated the value of Golub’s financing in PetVet. The story has been updated with the accurate figure.

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