In 2004, Jeff David, the founder of Petbarn, and Glen Richards, the founder of Greencross Vets, met and the seed of a plan to merge their businesses was planted.
Now, almost 10 years later, a $338 million deal has been struck, which sees the duo merge to generate a greater addressable market and capitalise on the “humanisation” of pets.
David told SmartCompany that, in 2004, Richards had opened a pet store next to his vet hospital in Townsville and David helped him establish the business.
“I went and spoke to him about the best way to do it, so this was really the seed of the idea – it goes back a long way,” he says.
“More recently we’ve sat on each other’s boards. Glen has been on the Petbarn board for the past eight years and I’ve been on the GreenCross board for the past six.”
The merged group will create one of Australia’s largest pet care companies, with a total of 224 stores and clinics across Australia and New Zealand.
The deal sees Greencross acquire 100% of Petbarn’s owner, Mammoth Pet Holdings, in exchange for 52.6 million shares to Mammoth shareholders. This represents 58.25% of the merged company’s share register.
David will be the chief executive of the merged company, Richards will be the managing director of veterinary services, while Stuart James will take on the role of non-executive chairman.
A number of reasons were identified for the merger including developing a retail and services model with a point of differentiation from competitors, strengthening of client and customer engagement, creating cross-selling opportunities and creating a combined addressable market of $7 billion.
Currently the veterinary services market in which Greencross operates is worth $2 billion, while Petbarn’s is $5 billion.
David says the “humanisation” of pets will also drive growth.
“It’s easy to understand when you think about how society has changed in terms of the way we engage with our children. We read stories all the time about mother’s putting on over-the-top parties for their kids,” he says.
“We’re doing the same thing with our pets. Instead of having dogs named Rover and Butch, we have Lily, Nelson and Camilla. We’re thinking about how we can improve our well-being, so we think about how we can improve the well-being of our pets too.”
David says taking better care of our pets is a good thing for society.
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“For us it’s a good thing, but we also think society. There’s research which shows a reduced risk of suicide in young people in families with pets, and pets encourage old people to keep exercising and gives them the chance to be engaged and take care of someone,” he says.
The merged businesses expect to generate annual revenue of $443 million in full-year 2014, with a net profit after tax of $21 million.
David says the successful combination of pet services and retail businesses has been a proven hit in the United States and the United Kingdom.
“You’ve got PetSmart in the US which has around 1300 stores and is the largest pet retailer in the world. Sixty per cent of their locations include a store and a vet,” he says.
“In the UK, the largest pet retailer is a group called Pets at Home, which has over 300 stores and 33% of their outlets have a vet and pet combination.”
In 2012, PetSmart had revenue of $US6.8 billion and Pets at Home had revenue last financial year of $598 million.
David, the owner of a dog and two cats, says in this respect Australia has been behind the trend of combining vets with pet retailers.
“The opportunity for us is to look at how we can capitalise on the trend for well-being for our pets and providing Australian consumers with the best possible care for their loved animals,” he says.
David says “pet parents” in Australia are looking at ways to better care for their pets, but penetration rates of premium products still lag the US, where there is a 25% market penetration of top-quality products.
Both Greencross and Petbarn have been identified as high-growth companies, with more than 25% earnings growth over the past four years.
David says this will allow both businesses to merge and retain staff numbers.
“With our growth stories, it’s not about the staff we need to take out; it’s about our shared services we can develop together. So there will be no redundancies,” he says.
Since announcing the merger last week, Greencross shares fell 8.64%, before lifting in the past two days by 19.41%.
The merger still needs to be approved by shareholders, but David is confident the deal will be approved by January.
“Judging from the reaction of the share price you’d have to say that it will be approved. Most people understand the benefit of the combination of the two businesses. We both have a strong track record of earnings growth.”