00:00If you were to make a pitch to a company, to a business on what sector within consumer is most
00:05ripe for dealmaking, is most attractive, where would that be? Artie, why don't you kick things
00:09off? Great. Thank you for having me, Dani. I am super bullish on the pet sector. I think there's
00:15such robust fundamentals for pet right now. You have a growing pet population that's driven by
00:20social and demographic factors, and you have growing spending per pet driven by humanization
00:25and premiumization. And it is a compounding set of growth factors in a resilient category.
00:31I would double click on two segments, one being minimally processed pet food. It could be fresh,
00:36frozen, shelf stable. Think farmers, dogs, spot and tango, smalls. They're all taking
00:41share from traditional kibble on the shelf. And number two would be pet supplements,
00:46small emerging growth category, but really playing to the fact that pet parents are now thinking not
00:51just about lifespan, but health span for their pets. And you're seeing financial investors,
00:57strategic acquirers, they're all being active across the category, and even some folks considering
01:02the public market. So really nice to see that array of exit alternatives.
01:06Artie, you mentioned that this is a resilient category. Why do you see it as such? Is there not
01:10a risk that as consumers feel more of a pinch, they're more concerned about inflation, that they
01:14trade down in the pet food category? And some of these enterprising smaller pet companies maybe miss
01:20out for, you know, like a Walmart brand, white label type food product.
01:25Yep. It's a great question. I mean, you definitely have the dynamic of a K-shaped economy that's
01:29impacting all of consumer right now. But if you look at the data, depending on the survey,
01:3495 to 97 percent of consumers consider pet, their pet, they're a member of their family. So
01:40that really impacts how they think about discretionary spending or non-discretionary spending.
01:45You tend to see consumables be the most resilient. Main meal food, you know,
01:49on average, a dog owner is only going to change food maybe twice in the pet's lifetime. So there's
01:55a lot of loyalty there. You may see some trade down in other categories that are a little bit
01:59more commoditized, where there's less of a switching cost for the pet parent and the pet.
02:03I can't believe that survey is only, what, 70 percent? It feels like it should be higher than
02:07that, Artie.
02:0897 percent.
02:09Okay, okay. I misheard. Thank you. That makes way more sense. Maria, let me get to you.
02:15Where do you think in the consumer is most attractive right now?
02:18Well, as the head of consumer, I can't play favorites, so I'll give you three. We're seeing
02:24incredible activity in broader health and wellness, similar to the K-shape economy comment. People are
02:30investing in themselves, and so that is playing across a lot of different areas. VMS, personal care,
02:37fitness routine, devices, looking younger, living longer, feeling good. And then I would say travel
02:45and leisure. We are still seeing people invest in experiences, and so high-end cruise or adventure
02:52travel, all the things to build those memories and share those with their millions of friends online.
02:59And then youth enrichment, and that could be everything from swim lessons to team sports and
03:07youth travel programs to early childhood development, different classes, enrichment opportunities for
03:16families to invest in their children.
03:18Maria, just generally, where are these deals taking place? Is it corporate carve-outs? Is it smaller
03:24companies, public, private? Where is sort of the deal flow concentrated at this moment?
03:30Sure. So most of the headlines have been in these mega deals, but we are seeing a really robust level
03:38of pitch activity, and actually no pitch wins with both founder businesses and private equity businesses
03:44that have had either strategic or sponsor buyers approach them, and it's catalyzed something. And so we have
03:51a lot in our pipeline that is more traditional middle market that I think is seeing positive reinforcement
03:57in terms of mega cap deals that are announcing, as well as some IPO activity that is leading to a
04:04strengthening
04:05middle market in the consumer space.
04:06Marty, I'd love to ask the same question for you. Where's the bulk of your pipeline that you're seeing coming
04:10from?
04:12Yeah, so I would say, you know, I cover multi-unit services as well, some of the areas that Maria
04:17mentioned,
04:18fitness, med spas. With a lot of those multi-site businesses, you tend to have more sponsor-driven
04:23activity. There's just less of a strategic synergy to be had when it's, you know, de novo
04:29unit openings. I'd say in the pet sector in CPG, you do see a mix of both private equity as
04:35well as
04:36strategic activity. Right now, some of the large cap CPG players are a bit strained with their core
04:41businesses, so they have pulled back on M&A more recently. But historically, the pet CPG category has
04:46seen a ton of activity from strategics. Think of folks like Mars, Nestle, Colgate, you know,
04:53General Mills. They've historically been very active, and we expect them to be active again.
04:57Artie, what's your take on the beauty sector? I mean, we have seen some high-profile deals like
05:01Coat buying Haley Bieber's brand, for example. Do you think that there's more, to Maria's point,
05:08more to happen there?
05:10I think there's a lot of opportunity in aesthetic services. That's where we're seeing a lot of interest
05:15right now, and that would be medical spas with, you know, Botox, cool sculpting, laser facials,
05:20et cetera, as well as some other aesthetic services. But I really focus on that first category.
05:25Highly, highly fragmented. Vast majority of the industry is owned by single-unit operators,
05:30and so a lot of opportunity for private equity there. And then you have really strong unit economics
05:36out of boxes that are highly replicable in a broad range of markets, ton of white space,
05:40and then all the right consumer tailwinds. You know, we're living in the age of agelessness,
05:44and people want to, you know, look and feel good from the inside and out. And it's also a highly
05:49recurring revenue business, with injectables being the largest chunk of services. And
05:55obviously, folks have to go back to maintain their appearance. So the combination of fragmentations,
06:00strong unit economics, white space, consumer trends, recurring revenue, it's a pretty nice
06:05combination there. And a lot of sponsors are looking to deploy capital in that category.
06:09Well, just so to be fair on the show, Marie, I also got to ask you what your take is
06:14on the pet
06:14sector right now. So Artie is the pet expert, but we do have some increasing activity in the pet space
06:24as well, both in pet services and pet products. And we have just recently made a hire in the food
06:32and
06:32beverage and broader pet space. So we are bullish on it and investing behind it as well.
06:38Artie, what do valuations look like right now for the entirety of the space generally? Have they come
06:43down because of consumer concerns? Is it really uneven? What are you seeing kind of on a, you know,
06:48a big picture view for how valuations look?
06:51Yeah, I mean, for pet, it's been a bit of a roller coaster, to be honest. You know, COVID represented,
06:57you know, the biggest pet M&A boom that we'd seen in a while. We all know why there was
07:01a big pull
07:02forward in pet adoption and then really just drove a ton of growth after that. And so it wasn't
07:07unusual to see, you know, EBITDA multiples north of 20 times for pet consumables business on the
07:13branded side. That has definitely moderated. I think you have a lot more of a discriminating
07:18investor. But I think folks see all the tailwinds that I mentioned earlier, and there's still a lot
07:23of interest. So for a high growth asset with a strong margin profile and some differentiation and
07:28a crowded market, there's still the potential for very healthy double-digit EBITDA multiples.
07:32Yeah, I mean, tech-like multiples for pet food feels kind of nuts. But I get it, Maria. How
07:36about valuations? What are you seeing in what you're looking at today?
07:40So we are still seeing a pretty large bifurcation between the A assets yielding top-ticking multiples
07:47that are competitive with market-clearing multiples over the past five years. I would say the B
07:53assets are having trouble transacting. So it really is a rush and focus on the A quality assets,
08:02especially in the consumer sector and others. You know, there's some more price discipline.
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