Candy giant Mars Inc., facing a slowdown in packaged food, is making a bigger bet on a booming industry: pet care.
The maker of M&Ms and Snickers agreed to buy the animal-hospital chain VCA Inc. for about $7.7 billion on January 9 -- not including debt -- expanding on its existing veterinary-care business. Mars will pay $93 a share in cash, a 31% premium to VCA’s closing price of $70.77 on January 6.
The acquisition turns Mars into a dominant company in corporate-owned pet hospitals, an area that’s exploded in recent years -- helped by Americans treating their pets more like family members. It also could help bolster Mars’s current pet brands, including Pedigree and Whiskas.
At a time when human food isn’t growing as quickly, the deal may make more sense for Mars than buying another snack business, said Ken Shea, an analyst at Bloomberg Intelligence. “They see growth and they see diversity,” he said. “Why double down on food when it’s not growing that fast?”
The total value for the deal is about $9.1 billion, including $1.4 billion in outstanding debt. Shares of VCA, which trade under the ticker WOOF, surged as much as 29% to $91.03 on January 9 after the transaction was announced.
Closely held Mars had already been building out its pet business, including both food and hospital care. The company owns Banfield Pet Hospital and BluePearl Veterinary Partners, and it’s acquired pet-food brands from Procter & Gamble Co. VCA, meanwhile, operates almost 800 animal hospitals in the U.S. and Canada.
The deeper push into the pet business by Mars comes as large packaged-food companies are struggling with flagging sales. Changing consumer tastes, particularly a desire for less processed foods, has made it difficult for the companies that have dominated grocery-store shelves. Efforts to reduce sugar intake have struck an additional blow to candy makers such as Mars. That’s added pressure to diversify their portfolios.
Spending on pets has surged in the U.S., fueled by the “humanization” of dogs and cats. Americans spent $35 billion on veterinary care in 2015. VCA, a pioneer in the field, has grown by buying up hundreds of veterinary hospitals -- an approach that’s now being adopted by rival companies.
Mars, based in McLean, Va., expects the VCA deal to be completed in the third quarter.
“VCA is a leader across pet health care and the opportunity we see together -- for pets, pet owners, veterinarians and other pet-care providers -- is tremendous,” Mars CEO Grant Reid said.
By Zachary Tracer and Craig Giammona