PE-backed Gambol Pet trades up after $220m China IPO

The company sold approximately 40m shares at CNY 39.99 apiece, according to a filing. The stock ended its first day of trading on Shenzhen’s Chinext board on August 16 up 46% at CNY 58.45. It closed at CNY 48.33 on August 22, giving the company a market capitalisation CNY 1.95bn. Using the total issued shares as a guideline – rather than the 10% that are publicly tradable – Gambol is worth CNY 19.3bn.

KKR provided growth funding to Gambol in 2016 and is now the company’s largest external shareholder with a 19.1% stake. Legend invested later – across two tranches, in 2019 and 2020 – and holds 4.1%. Gambol continues to be controlled by Hua Qin, its founder, chairman, and CEO, who owns 45.7%.

"Gambol Pet will take the listing as an opportunity to firmly grasp the strategic window of the rapid development of the pet industry in China. We will adapt to the changes and dynamic trends in pet culture, consumer upgrades, and consumption concepts and continue increasing our products' market share in domestic and overseas markets,” Qin said in a statement released by Legend.

Established in 2006, the company started out as an original equipment manufacturer (OEM) serving overseas brands. Its first in-house brand – Myfoodie – emerged in 2013. Since KKR’s investment, the OEM-branded revenue split has shifted from approximately 70-30 to 30-70, elevating Gambol from seventh to first in the local mass-market brand rankings.

“We visited a lot of pet food companies and recognised some product innovation was required. Gambol’s OEM business was pet treats and our research found that if you combined these with kibble – creating kibble-plus, or meat and kibble – it would create a highly commercial product,” said Jason Wang, a director in KKR’s China private equity team, told AVCJ earlier this year.

He added that the capital infusion allowed Gambol to be patient, absorbing a couple of years of break-even performance on the branded business before wider market acceptance supported profitability. The company also pushed into e-commerce, converting consumer data into insights that underpinned 10-15 new product launches each year aimed at different consumer segments.

Gambol is now edging into the premium segment through a sub-brand. To this end, in 2021 it acquired Waggin’ Train, a US pet food brand.

The company generated revenue of CNY 3.39bn in 2022, up from CNY 2.57bn a year earlier. Over the same period, net profit rose from CNY 141.8m to CNY 265.6m.

Investors see a link between GDP per capita and step changes in pet ownership and then in the premiumisation of consumption. China has moved to step one faster than its peers in emerging Asia and it accelerated towards step two during COVID-19, according to Scott Chen, a managing partner at L Catterton Asia, which has invested in two local pet food brands.

Cat ownership is regarded as a leading indicator of premiumisation: cats are more selective in what they eat than dogs, which requires product innovation and engenders brand loyalty; and cat food is sold in smaller portions than dog food, so a higher price point is necessary to reach parity on a per-kilo basis. China's cat population has risen from 40m to 65m in the past five years

"With the continuous improvement of people's living standards, more and more people are getting emotionally attached to pets. The pet industry in China is in its early stages and enjoys broad prospects for future development,” said Raymond Chen, co-CIO at Legend.

China’s pet food market was worth USD 7bn in 2022, accounting for 40% of the Asian total, according to Euromonitor International. Meanwhile, Frost & Sullivan projected earlier this year that broader pet-related spending in the country would hit CNY 537.6bn (USD 75bn) by 2026, nearly twice the 2021 level.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• IPO
• Consumer
• China
• KKR
• Legend Capital