Morgan Stanley Arm to Sell Vet Unit -- WSJ
March 16 2020 - 3:02AM
Dow Jones News
By William Louch and Laura Cooper
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (March 16, 2020).
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 16, 2020 02:47 ET (06:47 GMT)
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