In October 2020, Rutland Partners completed the sale of Armitage Pet Care to Spectrum Brands in the US for £140m. The price reportedly valued the business at 5.7x earnings. Rutland had scooped up the Nottingham-based business three years previously, in September 2017. In between, it had grown sales of its Good Boy choc drops, chicken-coated dumbbells and Meowee! tuna fillet strips – among hundreds of other lines – from £45m per annum to £65m. Armitage supplies more than 2,000 products for pets including dogs, cats, birds and fish via supermarkets and specialist retailers.
The trump card on the sale was held by Rutland. “It was all capital-funded on completion,” says Ben Slatter, a partner at Rutland. “We weren’t going to accept a structure with earn-outs to hit. They could see the performance of the business, and we structured things in a way that was attractive to us, and to the management vendors as well.”
Global growth market
Armitage specialises in on-trend natural products in a growing market, growth that accelerated through the pandemic as the number of UK pet owners grew dramatically. People were seeking companionship to address lockdown loneliness, or perhaps just something to occupy their time. The pet care market had been growing strongly pre-pandemic – over the past decade it had expanded globally by an average of 5.8% a year, according to Euromonitor – and by 2019, it was worth $104bn.
On buying Armitage, Slatter recognised a business with tremendous potential. It was profitable but under-invested and far from efficient. The opportunity was there for major growth and improved marketability. Rutland’s investment director, Matt Hamilton-Allen, says Armitage was a business that was “almost bursting at the seams”.
“It had a structure in place that was fit for a smaller business. We, as classic private equity investors, wanted to gear it up for growth. The first thing that we did was change the warehouse system, allowing more headroom. Then we invested in data and systems.”
Rutland brought in Alan Jamieson as executive chairman “on day one”, says Slatter. Mark Andrews joined as CEO and Sarah Smith as finance director in May 2018, with the aim of boosting Armitage to the position of market-leaders Mars and Nestlé.
“We bought a business that was way under-invested,” says Slatter. “It was doing £45m turnover, and had a cost base probably sufficient to support a business half its size. It was overstretched. We had to put in a team and infrastructure that supports the business to continue growing.”
Who’s biting?
Slatter says that it didn’t go to a mainstream mid-market PE fund because of the state of the company in 2017. However, Rutland saw something it could develop, ready for a competitive process in 2020. Slatter knew there would be competition between private equity and trade for the asset, saying: “The pet market has seen a lot of interest from financial sponsors, there have been a number of recent deals and the success of Armitage has been increasing. We’ve had a fair amount of inbound interest from private equity, but we were keen to run a process that included trade. So, that’s what we geared the process around.
The plan was always to prepare for the private equity deal,” says Slatter, “but we did all the vendor due diligence to support both types of bidders, and were ready to launch with it in September 2020. There had been rumours that this asset was coming to market, and we were approached through its advisers by Spectrum, who wanted to shortcut that and stop our process.”
Spectrum is a Wisconsin-based corporate best known for its Remington, Black & Decker and Russell Hobbs brands, but with an increasing paw-print in the pet food and pet care sectors. It will undoubtedly have the ability to leverage existing relationships with global grocers and integrate Armitage’s products into its European supply chains. Rutland sees the European pet treat market as underdeveloped compared to that of the UK, but the company could not find suitable bolt-ons during its three-year ownership.
Spectrum’s ‘offer you can’t refuse’ to Rutland was, however, not without risk to the vendor. “Once you stop your process,” explains Slatter, “you remove competitive tension, and you have to make sure you trust that they’re going to deliver. There was a period where they did pretty intensive due diligence to reconfirm an offer level, and at that point we awarded them exclusivity. We worked our way through that, and the business continued to perform, so there was no haggle over the price.”
Hamilton-Smith adds: “It was that balance between price, value and the process that they have to go through to get there. Trade always takes a bit longer and involves keeping their feet to the fire and making sure they are doing the work that is needed. I think through some strong negotiation we got them to the right place, and they did a deal in the timeframe that we wanted them to, at the price we were willing to accept.”
Well trained
As it turned out, the company ended the 2019 financial year with EBITDA of £9.5m. The earnings continued to grow substantially through 2020 to the exit. “A good margin achieved a good multiple.”
PwC had helped sell the business to Rutland in 2017, and had stayed in contact. So they were on hand when Rutland looked to sell, with Sarah Taylor providing corporate finance advice and Helen Ward carrying out vendor due diligence.
“There was an awful lot of demand for the asset,” says Taylor. “The pet market is very hot, even outside COVID-19, but has become much stronger now, given its proven resilience.
“There’s a great deal of private equity and trade interest in the sector. So we were never worried about where we would be. But one of the key features is to make sure that the business is strong and that we have a smooth process when we come out. That’s why Helen was part of the team, making sure that we did all the pre-work and were ready to go.”
Because of the preparation PwC was able to put in and the quality of the management team, combined with the investment that Rutland committed, they were able to respond to “everything the buyer asked for very, very quickly”, says Taylor.
Ward adds: “Rutland had clearly invested over the last couple of years from management, systems and operational perspectives, so were well prepared to go through the process itself. Management ensured trading continued to go well and that they were in control of what was needed throughout, responding to us during our vendor due diligence process and providing all the information buyers would need.”
The deal was unusual in that senior decision-makers from Spectrum were unable to meet face to face or tour Armitage’s Nottingham base in person because of the national lockdown in the UK. Despite that, says Ward, “everything went smoothly”.
And what for the business going forward? Hamilton-Allen says: “Spectrum is being careful to understand what it bought and not disrupt something that is clearly working very well. The team are all currently in place, and there will be an integration process with Spectrum’s European pet business that needs to be managed over the next year.”
About the article
This is an extract from the full article in the Corporate Financier March 2021 edition - exclusively for Corporate Finance Faculty & Faculties Online members - who can access our highly regarded magazine in its originally designed form, as well as our extensive archive brought to you by the ICAEW Corporate Finance Faculty.
