MS Morgan Stanley

By William Louch and Laura Cooper 

The North American private-equity arm of Morgan Stanley Investment Management has agreed to sell veterinary clinic chain Pathway Vet Alliance LLC to consumer-focused buyout firm TSG Consumer Partners, according to people familiar with the matter.

Although details of the transaction couldn't be learned at press time, the company was expected to trade hands for at least $2 billion, including debt, said other people with knowledge of the deal.

The transaction is one of a limited number of mergers and acquisitions to move forward in an environment still adjusting to the market upheaval of recent weeks.

Fears about the economic effects of the novel coronavirus pandemic on the world economy has led to wild swings in the stock market over the past five days, with the volatility making it harder to value and finance deals.

Large leveraged buyouts often depend heavily on the buyers' ability to obtain debt, often in the form of syndicated loans or high-yield financing. However, bankers and deal attorneys say the availability of such debt has all but frozen over the past week as certain lenders reassess risk. It is unclear how much debt TSG plans to use to finance the deal.

Investors typically view pet-care companies as relatively safe bets in a downturn, however. Such businesses have attracted billions of dollars in recent years from private-equity firms and corporate acquirers eager to tap into a fast-growing yet fragmented market fueled by increased consumer spending on pets.

Pet owners in the U.S. are expected to spend nearly $100 billion on their pets this year on everything from pet food to toys, an increase of around $5 billion on last year, according to research produced by the American Pet Products Association. Nearly a third of this expenditure is estimated to go toward paying vet bills, the research shows.

These trends have attracted large companies to the sector, including Mars Inc., best known for its candy bars, and consumer-focused investor JAB Holding Co., which owns Krispy Kreme doughnuts.

Last year, for example, JAB bought a stake in Compassion-First Pet Hospitals, a chain of U.S. vet clinics, in a $1.22 billion deal. Mars bought pet health business AniCura Holding AB for close to EUR2 billion the year before.

A sale at the proposed valuation stands to generate a big windfall for New York-based Morgan Stanley Capital Partners, which bought a stake in the business in 2016. The firm typically invests in midmarket businesses valued between $100 million and $750 million.

Under Morgan Stanley's ownership, Pathway has expanded rapidly. The Austin, Texas-based company owned and operated more than 30 veterinary hospitals when Morgan Stanley first invested. Since then, the company has been on an acquisition spree, rapidly consolidating veterinary clinics across the U.S. In 2019 alone, Pathway bought 79 new vet practices, bringing its network of vet hospitals to more than 240 across 35 states, according to Pathway's website.

San Francisco-based buyout firm TSG made its name backing consumer and retail companies, including beer business Pabst Brewing Co., health club Planet Fitness Inc. and drive-through coffee chain Dutch Bros Coffee.

The firm's success backing well-known consumer brands has enabled it to amass ever larger buyout funds, including a $4 billion fund that closed last year. TSG also has expanded into new markets, opening its first office outside of the U.S. in London last year in a bid to increase deal flow in the region.

Write to William Louch at william.louch@wsj.com and Laura Cooper at laura.cooper@wsj.com

(END) Dow Jones Newswires

March 14, 2020 19:01 ET (23:01 GMT)

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