Deal focus: Quadrant makes another premium pet play

But the premise of the deal - that Australians are increasingly "humanizing" their pets, stimulating demand for premium products and services - remains relevant. Indeed, the magnification of this trend on a global scale was key to Quadrant's acquisition of a majority stake in VIP Petfoods for A$410 million ($313 million).

The industry dynamic is twofold. First, there is a movement away from feeding pets table scraps to feeding them manufactured food; it is estimated that manufactured food now accounts for 80% of pet consumption globally, although only 50% in Australia. Second, pet owners are shifting from mass brand, low price products to premium foods.

"The premiumization of pets is quite strong in Australia and evidenced globally, particularly in the US," says Jonathon Pearce, investment director at Quadrant. "With the trend towards grain-free foods and premium foods, it is probably accelerating."

US-based Freshpet has already capitalized on this trend, going public in November 2014. It was set up in 2004 and posted $86.7 million in sales and $5.5 million in adjusted EBITDA last year. VIP is 10 years older and generates over A$300 million in revenue and A$50 million in EBITDA. It could have pursued an IPO but the founders, Tony and Christina Quinn, decided to work with Quadrant instead, and retain a minority interest in the business. The PE firm expects the company to go public in due course.

Producing more than 150,000 metric tons of pet food each year, VIP ranks third in Australia's $3.3 billion pet food industry after Mars and Nestle. However, it is the runaway leader in the chilled pet food segment, which accounts for about 10% of the market. It is also the number one player in the segment globally, exporting to the US, Canada, South Korea and Japan.

"Tony Quinn has a chilled pet food business in New Zealand that the family sold before moving to Australia," Pearce says. "They introduced it to Australia in 1994 and have increased its presence in the grocery channel. Nestle and Mars don't like the chilled segment, in dog food and in other categories. It's a difficult supply chain to manage."

He sees the technology that enables VIP to manufacture at a favorable price point on a large scale as a competitive advantage that will serve the company well as it expands in the $80 billion US pet food market, where it already has a distribution agreement with HEB Texas Grocery. Quadrant's capital will be used to support growth, and this could include setting up manufacturing facilities in the US.

"It's a relatively young market in the fresh segment and the US market is massive. You really just need to focus on one state to be relevant," says Pearce.

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• Topics
• Consumer
• Buyout
• Australasia
• Consumer
• Quadrant Private Equity
• buyout
• Australia