OpEx Awards 2018: L Catterton finds value in premium pet food

L Catterton wins the upper mid-market award for the Americas after reaping an 8x return from Ainsworth Pet Nutrition.

When L Catterton invested in fifth-generation family-owned pet food manufacturer Ainsworth Pet Nutrition in May 2014, its premium Nutrish brand accounted for roughly 30 percent of the company’s total sales. But the deal team saw a big opportunity in the brand’s value proposition.

“Based on our prior success in the pet food category, we identified an opportunity to bring pet store quality pet food to the supermarket, and were proactively targeting companies that were positioned to deploy that strategy,” Scott Dahnke, global co-chief executive of L Catterton, tells Private Equity International. “We saw Nutrish as a brand uniquely positioned to capitalise on that strategy.”

It was a big leap of faith to make an all-equity investment, the majority of which was put straight onto the balance sheet as primary capital, into a business with EBITDA of just over $10 million, but it was a risk that paid off.

When L Catterton sold the company to JM Smucker Company four years later, it had grown EBITDA organically by a factor of more than 10x.

“[Ainsworth is an] excellent summary of value-add – a complete transformation of an OK business into a market leader,” says judge Joncarlo Mark.

So, how did they do it? L Catterton partnered with the founding Lang family and the management team to create a strategic plan to build the Nutrish brand, increasing consumer advertising spend by nearly tenfold.

“We had a strategy that we would turbo-charge the Nutrish brand and advertise it aggressively,” Dahnke says. “We worked with them to write the first TV ad, which won a lot of awards.”

By the time of exit, Nutrish accounted for more than 80 percent of total revenue.

L Catterton initially streamlined operations, selling off a plant in Dumas, Arkansas, focusing energies on its original plant in Meadville, Pennsylvania. During the investment the firm invested more than $40 million into the plant, growing its manufacturing capacity by more than 70 percent as well as reducing the cost of manufacturing per ton by almost 50 percent, enabling the company to double its gross margins.

Ainsworth added a new VP of sales and tripled the size of its salesforce, more than tripling Nutrish’s national distribution points and building a new e-commerce platform. It also launched two Nutrish sub-brands.

In June 2017 Ainsworth acquired Triple T Foods, its largest co-manufacturer. This strengthened the company’s control over its supply chain, adding a Kansas facility to support continued manufacturing growth.

“In 2016, as measured by Nielson, the Nutrish brand was the fastest growing consumer packaged goods brand, not just in the pet category but in all measured categories,” Dahnke says.

In late 2017 the firm retained Goldman Sachs as an advisor to explore both a strategic sale and a public listing. The business was sold to JM Smucker Company for $1.9 billion, delivering a gross cash-on-cash return of roughly 8x to investors in L Catterton’s $1.68 billion seventh buyout fund.