ACQUIRE - CVS buys Aetna for US$69B

Aggregation by a pharmacy benefit manager (PBM) may deliver a shorter path, better care and lower costs.

According to Bruce Japsen in Forbes the CVS deal, values Aetna at $207 a share, and creates a company with combined annual revenues of $240 billion, which rivals United Health Group ($225 billion forecast in fiscal 2018). Japsen notes that Aetna aborted its effort to buy rival health insurer Humana last year in the face of antitrust scrutiny and didn’t have the resources to build doctor and outpatient care centres like United’s Optum unit has been doing.

“This combination brings together the expertise of two great companies to remake the consumer health care experience,” said CVS President and Chief Executive Officer Larry Merlo. “With the analytics of Aetna and CVS Health’s human touch, we will create a health care platform built around individuals.”

The Washington Post quoted Michael Rea, Chief Executive of Rx Savings Solutions, “This is kind of uncharted territory — a pharmacy benefit manager (PBM) buying a major national health plan. I think it’s a sign of the times, PBMs represented a little-known entity no one knew about not that long ago, and now they’re the controlling piece of the deal to take over a national insurer.”

No one should be surprised. The margin between pharmaceutical manufacturer and consumer is open to attack and consumer satisfaction is low. In once sense, it's no different than the aggregation that is happening in other markets such as grooming products. An InfoStream story earlier this week showed Gillette's ability to drive the price of a razor into the stratosphere opened the door for innovators to rethink the market and gather in quite a bit (11%) of Gillette's market share.

While the CVS Aetna transaction may be uncharted territory, the sector will likely see more activity. According to a story by Lauren Hirsch of CNBC on Monday, the CVS acquisition is aimed at driving Aetna healthcare subscribers to CVS stores. She suggests a 'market watch' on Walgreens, Rite Aid, Kroger and Walmart to look for similar mergers or acquisitions. Everyone sees the need for these players to shore up market share, acquire innovation and eliminate threats.

According to an article in Fortune, Wall Street is skeptical. The success of CVS Health Corporation's acquisition of health insurer Aetna Inc. is a bet on a complex and untested strategy. Some analysts are questioning whether the companies can pull it off.

CVS plans to build mini health centres in some of its 9,700 stores, turning them into key locations where Aetna members — and customers of rival insurers — get low-level care for ailments and chronic diseases. Already, CVS has 1,100 'MinuteClinics' in its pharmacies, and is testing out hearing and vision offerings in a handful of CVS locations.

Investors also seem to be showing skepticism. Aetna stock was trading at $180.11 as of 9:34 a.m. in New York on Tuesday. That’s 13 percent below CVS’s $207-a-share cash-and-stock offer. Investors may be pricing in the fact that CVS Health will no longer be a dividend growth company following this transaction.

CVS competitor UnitedHealth Group has a menu of health insurance products under its umbrella including Medicare, Medicaid and OptumRx as its' pharmacy benefit manager (PBM) as well as 30,000 healthcare professionals and hundreds of practices, outpatient surgery centres and urgent care facilities spreading across the country.


WHY THIS IS IMPORTANT:
Rethinking the market to create a broader ecosystem has just begun. Technology is driving the ability to bring new bedfellows together, but innovative thinking to find large pools of subscribers that can be cemented into an existing ecosystem is the game. This aggregation has already begun in the dental and cosmetic business and is also beginning in healthcare for companion animals. 

Watch the companion animal market for moves to cement a national animal health insurer together with retail locations, veterinary hospitals, diagnostics, technology and nutrition. Companies like Fairfax, Mars, National, Nestle, Petco and PetSmart will likely look at this deal very closely. 

While some call this kind of transaction a 'market consolidation', at Paradigm we look at it from the client perspective. It is really about aggregating the client demand while improving the client experience and convenience.

Ontario Teachers buy PetVet

Ontario Teachers transaction is just the latest pet industry buy

According to earlier reports this week, the Ontario Teachers Pension Plan has acquired PetVet Care Centers from Catterton Partners in a deal said to be valued at $440 million.

The Ontario Teachers Pension Plan (OTPP) is no stranger to investments in the Pet business. In 2005 OTPP acquired Doane Pet Care Enterprises the largest private label manufacturer of pet food in North America for $840 million dollars. Leveraging a strong management team and distribution network, OTPP was able to sell Doane to one of Doane's largest customers, Mars Inc., just a year later for $1.2 billion. Doug Cahill, now Managing Director of CCMP Capital, spearheaded Doane's growth from 1.7 billion to $4 Billion in three years and retained leadership of the US PetCare business through both transactions.

According to the numbers reported, the purchase of PetVet by OTPP values Catterton’s investment at 5.8 times the original acquisition. Catterton investors stand to reap almost 4.7 times their original investment in cash.


The PetVet acquisition is the latest in a string of transactions in the pet care sector that began in 2011. According to various reports including the Wall Street Journal increased consumer spending is driving premium prices to be paid for pet related acquisitions. Here is a list of several:

• 2015 January - PetVet from Catterton Partners by OTPP for $440 million (11 times EBITDA)
• 2014 December - Privatization of PetSmart Inc by BC Partners and friends for $8.7 billion (9.1 times EBITDA)
• 2014 November - Privatization of Pethealth by Fairfax Financial for $100 million (Consolidate value chain)
• 2014 August - Purchase of National Veterinary Associates from Summit Partners by Ares Management LP for $920 million (13 times EBITDA)
• 2014 August - Purchase of Pet360 by PetSmart for $130 million (Acquisition of users)
• 2014 April - Purchase of Iams and Eukanuba from Procter & Gamble by Mars Inc. for 2.9 billion (Consolidate market position)
• 2013 June - Purchase of PetFinder from Discovery Communications by Nestle Purina for undisclosed amount (Add media channel)
• 2013 May - Purchase of Heartville Group pet insurance by Fairfax Financial for undisclosed amount (Consolidate value chain)
• 2012 January - Purchase of Associated Veterinary Clinics by VCA Antech Inc. for $75.5 million (Expansion into Canada)
• 2011 September - Purchase of VetStreet (MediMedia) by VCA Antech Inc. from Vestar Capital Partners V.LP for $146 million (Add media channel)

In September of 2011, Bob Antin, chairman and CEO of VCA Antech, Inc., said, "We are excited about combining Vetstreet (media) with our existing businesses (laboratory services and clinics). We believe that this combination will provide both companies with outstanding growth opportunities." In 2012, after being acquired for $146 million, MediMedia revenues were expected to grow from $55 to $65 million. 

According to the American Pet Products Association, Americans spent almost $60 billion on their pets in 2014. This figure has tripled in the past 20 years despite the global economic downturn. According to Vet association estimates, healthcare spending for pets increased 6% during 2014 to $15.25 billion. Ontario Teachers see an opportunity to leverage pet spending with this investment. As the transaction list above shows they are not alone.

In a line of acquisition stretching over four years the goal has been consolidation, aggregation of the value chain, securing media channels and global market expansion. The question facing the industry and investors is what will be next. 

Expect management to refine business models by seeking to lower the cost of acquiring and maintaining customers (influencer/loyalty programs) and by more efficient delivery of the products and services pet owners desire. 

InfoStream newsmakers of 2014!

2014 was an exciting year for the urban animal industry. Success and expansion of the Urban Animal program; mergers and acquisitions that changed the face of the services and retail sector; and inspiring stories of innovation all played a part in collective achievements celebrated by Urban Animal associates this past year. 

Here are a few InfoStream highlights (in order of top page views) from 2014:

The Top Dog Store™ re-invents retail for dogs: Calgary's Robert Church opened the doors to a new store offering a redesigned look at the retail sale of pets. The Top Dog Store™ produces a unique dog-centric experience directed at property homing the animals. Measures include certified and inspected sources of animals; mandatory vet visits, animal warranties and national identification and return-to-owner services; and follow-up services for clients that support behavior and ongoing health. 

Career networking in the Urban Animal Industry: During the Backers Total Pet Expo in September, pet industry veteran Jamie Damato Migdal launched a new online platform to help pet industry professionals find qualified and dedicated employees. FetchFind.com, which is in Beta form, will offer the opportunity for aspiring pet industry professionals to increase expertise through online learning modules as well as locate job opportunities by browsing job postings on the site. 

2014 Social Media Trends: An article on Business 2 Community (B2C) forecast that in 2014, Twitter would surpass Facebook, marketing would transition from monologue to dialogue and that images would outrank content for user engagement. Hashtags were also predicted to become the leading online search tool as every social media channel accepted and encouraged its use. 

Atlantic Innovation Showcase Spotlight Paws Fur Thought - Service dogs for veterans battling PTSD: Since being paired with his service dog, Thai, in 2012, retired Canadian Armed Forces Captain Medric Cousineau has been working to raise awareness and funds to help other veterans achieve success and peace through their own service dog pairings. Cousineau was introduced to the Urban Animal program thorough the Innovation Showcase and received the 2014 Innovator of the Year as well as the 2014 Health and Wellness Summit Awards. 

Mars to buy most of P&G's pet food business for $2.9 billion: In April, Mars, Incorporated and the Procter & Gamble Company announced that Mars agreed to buy the IAMS®, EUKANUBA® and NATURA® brands in major markets for $2.9 billion U.S. This was a strategic move for Mars Petcare to complement its large and growing global Petcare business. 

iAdopt unveiled - An interview with OSPCA's Tanya Firmage: Introduced in 2013 as iAdopt for the Holidays, the campaign was quickly refactored to offer several sub-campaigns throughout the year for various national holidays. This avant-garde campaign shows promise as an industry-wide and international initiative as it caters to all sectors of the industry and is available to everyone. More than 3,000 pets were adopted as part of the 2014 Christmas campaign. iAdopt was featured at the 2014 Regional Conferences as well as the 2014 Summit for Urban Animal Strategies in the Innovation Showcase program. 

An interview with Cheryl Herperger, City of Calgary's Off-Leash Ambassador Program: This pilot program launched in 2013 with ambassadors frequenting two Calgary off-leash parks to help spread educational messages and park etiquette to dog owners and walkers. The program experienced tremendous success and grew to 70 volunteers covering 12 of the city's parks in 2014. The Off-Leash Ambassador program was also featured in the Urban Animal Innovation Showcase. 

InfoStream Guest Author Program welcomes Patricia Cameron: Saskatoon SPCA Executive Director Patricia Cameron joined the Guest Author program in March with her "SWOT" series (Strengths, Weaknesses, Opportunities and Threats). Patricia's extensive background in the urban animal industry as well as in creating a sustainable environment have given her a unique perspective to create healthy communities for pets and people. 

Thank you to everyone who made this a successful year. Your collaborative efforts, forward thinking and commitment to the industry will undoubtedly lead to an even more successful 2015. 

HAPPY NEW YEAR! 

Spectrum Brands Buys P&G’s Remaining Pet Care Business

Spectrum Brands Acquires European Pet Care Business

Dateline: CINCINNATI

The Procter & Gamble Company (NYSE:PG) today announced last week, that Spectrum Brands has agreed to buy IAMS® and EUKANUBA® brands in Europe for an undisclosed amount.

In April, P&G announced the sale to Mars, Inc. of 80% of its global Pet Care business, including North America and Latin America. Europe was not included in that deal with the exception of Russia and Turkey. Mars later agreed to buy an additional 10% of the business in additional markets including Japan, Australia and South Africa. With the Spectrum transaction, P&G now has closed deals or reached agreements to sell 100% of its Pet Care business. The deal will close in 2015, subject to regulatory approvals.

P&G’s Chairman, President and Chief Executive Officer, A.G. Lafley, said: “Exiting Pet Care is an important step in our strategy to focus P&G’s portfolio on the core businesses where we can create the most value for consumers and shareowners. The transaction creates value for P&G shareowners, and we are confident that the European business will thrive at Spectrum, a leading company in pet care.” Spectrum has a strong Pet Care business with brands representing $600 million in global sales, including Tetra®, Furminator®, 8 in 1®, and Dingo®.

The geographic regions included in the acquisition, which account for approximately 10% of P&G’s former pet care global sales, include 42 markets throughout Europe.

Procter & Gamble focuses on the big brands

Procter and Gamble announced last week it plans to sell or discontinue as many as 100 brands in the next two years to cut costs and focus on its most important products. 

The company hasn't shown any attachment to some of its larger brand names in the past. It has entirely exited the food business, where it once owned big brands like Jif peanut butter, Folgers coffee and Pringles potato chips. Earlier this year, P&G announced it would also be exiting the pet food business, releasing IAMS and Eukanuba from its portfolio.

READ MORE: Mars to buy most of P&G's pet food business for $2.9 billion

The 70-80 brands that remain will have accounted for 90 per cent of the company's sales and more than 95 per cent of its profit in the past three years, said CEO A.G. Lafley.   

READ MORE: P&G Delivers Fiscal Year Commitments; Organic Sales Increase 3%, Core Earnings Per Share up 5%

"In summary, we are going to create a faster growing, more profitable company that is far simpler to manage and operate," said Lafley conference call to discuss fourth-quarter earnings, which beat analysts’ estimates. "This will enable P&G people to be more agile and responsive, more flexible and faster. Less will be much more." 

READ MORE: Procter and Gamble’s CEO is dismantling the behemoth he spent a decade building

READ MORE: P&G Plans to Shed 100 Brands to Focus on Top Performers

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Mars to buy most of P&G's pet food business for $2.9 billion

Mars, Incorporated and the Procter & Gamble Company announced today that Mars has agreed to buy the IAMS®, EUKANUBA® and NATURA® brands in major markets for $2.9 billion U.S. This is a strategic move for Mars Petcare to complement its large and growing global Petcare business. 

"We view the addition of the IAMS®, EUKANUBA® and NATURA® brands as exceptionally strategic," said Mars Petcare Global President, Todd Lachman. "This acquisition is a perfect fit with our Mars Petcare vision of making A BETTER WORLD FOR PETS™. The deal reinforces our leadership in pet nutrition and veterinary science, attracts world class talent and grows our world leading portfolio."

The geographic regions included in the acquisition, which account for approximately 80% of P&G Pet Care's global sales, include North America, Latin America and other selected countries excluding most European markets. P&G said it is working on alternate plans to sell its Pet Care business in European Union countries. 

"Exiting Pet Care is an important step in our strategy to focus P&G's portfolio on the core businesses where we can create the most value for consumers and shareowners," said P&G Chairman, President and CEO, A.G. Lafley. "The transaction creates value for P&G share owners, and we are confident that the business will thrive at Mars, a leading company in pet care." 

The company is expected to complete the transaction in the second half of 2014, subject to regulatory approvals. 

Mars Petcare is one of the world's leading pet food and veterinary care providers and employs more than 35,000 associates across 50 countries. Upon completion of the transaction, IAMS®, EUKANUBA® and NATURA® brands will join Mars Petcare's billion dollar stable mates PEDIGREE®, WHISKAS®, BANFIELD® and ROYAL CANIN®. 

For further company and financial impact related information, READ THE NEW RELEASE.