Business Advice

Moving your Pet Company up the Valuation Chain: Steps to get the MOST from a Potential Buyer

The adoring eyes.
The unshakeable trust.
The opinion that you are indeed, the most important person in the world.

Wouldn’t it be wonderful if potential buyers saw your business the same way your pet sees you? You’d definitely get a better price for company.

Just as there’s a difference between how your pet sees you and how the rest of the world sees you (let’s face it, most people don’t literally jump for joy when you walk into their home), there’s often a rift between how potential buyers value your company and how you value it. It’s called the valuation gap, and it runs rampant in the pet industry. You consider all the energy, time and emotion you’ve poured into building your company over the years—the sleep lost, the hairs greyed, the pounds gained. A buyer, however, looks at what he can get out of your company compared to all the other options out there.

Understanding this valuation gap, and getting a clear take on how buyers put a price on your company is the first critical step in boosting that price. A new study noted in Middle Market M&A Almanac in an article by Gary Ampulski, a managing partner at Midwest Genesis, a business value enhancement and transition planning and execution firm, helps crystallize buyers’ views.

Researchers drew on input from 835 business owners who received written offers for their companies. The analysts concluded that buyers put privately-held companies on four different levels in the value chain: Below Average Profit Companies, Average Profit Companies, Above Average Growth/Profit Companies and Low Risk Companies. Along with the industry and company’s size, these levels are what drive valuation.

Yes, the valuation is a function of profitability. But the almighty valuation multiplier is relatively independent of profit. It’s mostly based on the company’s investment risk. And let me tell you, it can really change the way a buyer puts a price on your business. The research shows that moving from an Average Profit Company to a Profit Leader Company cranks up your value by 2.7 times. Keep on moving up to the Value Leader category and the perceived value of your companies increases another 2.2 times. That’s a combined improvement of 4.9 times the starting value.

So how do you move your company up that value chain? Over the years I have been selling pet companies, these are the areas I have identified that will most significantly drive up the value of your business:

  • Increase your gross profit margin. Most pet product manufacturers other then food companies should be above 40 percent.
  • Reduce customer concentration. Ideally no customer should represent more then 10 percent of your sales.
  • Realize double-digit sales growth over at least the last two years.
  • Have new products in the pipeline that will result in immediate sales increases to a new owner.
  • Do everything you can to have intellectual property protection like patents and trademarks.

Understanding and acknowledging the valuation gap (I refer to it as “being grounded in valuation reality”), as well as the levels of valuation and the effect that key elements have on your multiplier, is the best way to boost value. Buyers might not literally wag their tails when you walk in the room, but if you position your company in that top Value Leader category, with a 5x multiplier, you might just be wagging when you receive an offer.

Carol Frank of Boulder, CO, is the founder of four companies in the pet industry and a principal at BirdsEye Consulting, the pet industry’s premier consulting group. Carol is a registered Investment Banker, specializing in Mergers and Acquisitions in the pet sector.  She also consults in the areas of strategy, licensing, and executive recruiting.  She can be reached at

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How To Command A Virtual Meeting Room


Face-to-face meetings are becoming the exception instead of the rule as sales teams and clients are spread throughout the US and modern day tools make it simple to communicate virtually.   While I believe that in person meetings are ideal, increasingly we are communicating – and leading – online.  Knowing how to captivate and communicate to your virtual audience is an essential skill, yet I’m not aware of a “Virtual Communication 101” class available.  If there was, I sure wish I had taken it!  So how do you become the person worth listening to?


An attractive, professional photograph can make an incredibly strong impression.  But to give yourself some character and personality, I also recommend a lifestyle photo or two of you being both human AND accomplished– perhaps crossing the finish line of a marathon.


People who use social media in the best way have a point of view.  Are you passionate about reducing the number of homeless dogs and cats?  If the story of who you are is clear, then your tweets, posts, and updates will be connected.


Because you aren’t in the same room as your audience, you can seem removed and difficult to connect with.  Especially if your subject is dry, being engaged and chatty will give you the human component you need to keep the listener engaged.


Speak in shorter chunks than you normally do and check in more often.  I am fortunate to get to moderate several webcasts each year for APPA, and I find it critical to keep the conversation lively and flowing between the presenter and me. No one wants to sit and listen to one person drone on for an hour.  If your call is interactive, ask your listeners if they have any questions before moving ahead to the next subject.


Have you Googled yourself lately to make sure nothing negative comes up?  I just did and discovered that there’s another Carol Frank who directed a movie called “Sorority House Massacre”! If something negative does come up, publish photos of yourself, thoroughly fill out your LinkedIn profile, and write some blog posts.  That will push the negative stuff about you down the search engine results list.

Carol Frank of Boulder, CO, is the founder of four companies in the pet industry. As a registered Investment Banker, Carol specializes in pet industry Mergers and Acquisitions and strategic advisory services.  She is also the owner of BirdsEye Consulting, the consummate source for pet sector consulting expertise.  She can be reached at 

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North America’s Growing Manufacturing Advantage

The North American Energy Revolution has resulted in the abundance of low-cost shale gas, which is helping the U.S. return to a prominent position among the world’s manufacturing leaders, which is great news to pet product manufacturers who would like their label to say “Made in the USA” or “Made in North America.”

According to a new study of the 25 largest exporting countries from the Boston Consulting Group[1], this year only seven have lower manufacturing costs than those of the U.S. Those countries are: Indonesia, Mexico, Thailand, China, Taiwan, and Russia.

Moreover, since 2004, U.S. manufacturers have become more competitive compared with every major export country except three: India, Mexico, and The Netherlands.

This is a dramatic reversal in just one decade! As I wrote in my May e-update column, it was unfathomable that I could have my Avian Adventure bird cages made in the U.S. for anything close to what I was paying in China. Even Mexico was 40% more expensive then China when I moved production from Mexico to China in 2002. Today it is only 5% cheaper to produce in China then the US, and the gap is continuing to narrow every year.

Why is this happening?

One factor, as we’ve already mentioned is cheaper energy. As energy demand soared, the cost of electricity has risen 66 percent over the past decade in China.[2]

 That’s more than twice the 30 percent increase in the U.S. over the past 10 years. The difference is that the U.S. started harnessing shale gas for energy in 2005, which has kept electricity costs from growing in North America as quickly as they have in the rest of the world. As a result, while natural gas prices went up by 138 percent over the past 10 years in China, they have dropped by one-fourth to one-third in North America.

At the same time, China’s labor costs are climbing. Since 2004, Chinese labor costs (adjusted to reflect productivity gains) went up 187 percent. Meanwhile, U.S. labor costs over the same period went up just 27 percent. In other words, in 2004 China wages averaged $4.35 per hour, less than one-fourth of the cost of $17.54 in the U.S.

By 2014, wages measured the same way climbed to $12.47 in China, more than half the cost of $22.32 in the U.S.

The U.S. has also benefited from shifts in the exchange rates, specifically the rise in value of China’s currency. Over the past 10 years, the Yuan has gone up more than 30% against the U.S. dollar.

But the U.S. isn’t the only country gaining a manufacturing advantage. Thanks to its close proximity to the U.S. and its own cheap energy and labor costs, Mexico is also developing into a manufacturing leader.

The Boston Consulting Group study found that in 2012, the cost to manufacture in Mexico (adjusted for productivity) fell to a lower level than in China. Think of how much faster and cheaper your products will arrive to your facility when they ship from Mexico versus China. Once again, lower energy and labor costs are the catalyst for the advantage.

That’s attracting the attention of global companies that once considered China the cheapest place to manufacture. For example, Honda has invested $1.3 billion to build production plants in Mexico over the past two years.

The U.S. and Mexico are now considered the “rising stars of global manufacturing” thanks to low wage growth, sustained gains in productivity, stable exchange rates, and a huge competitive advantage in energy costs. Based on these trends, experts have predicted the following trends:

• The U.S. will continue to hold a competitive advantage in energy costs until at least 2025.
• Because of the U.S. advantage in energy costs and the rising cost of labor in China, by the end of this decade it will be cheaper to manufacture in the U.S. than in China.
• Mexico, which has already surpassed China as a low-cost manufacturer, will continue to build its cost advantage and the U.S. will be among the beneficiaries. By 2015, Mexico’s average manufacturing labor costs are projected to be 19% lower than in China.

This is all very good news for those of us who make our living manufacturing pet products for the North American consumer. Perhaps those long plane rides to Asia, unfamiliar and scary meals, and less-then-pleasant factory visits will soon be a thing of the past.

Carol Frank of Boulder, CO, is the founder of four companies in the pet industry and a principal at BirdsEye Consulting, the pet industry’s premier consulting group. Carol is a registered Investment Banker, specializing in Mergers and Acquisitions in the pet sector. She also consults in the areas of strategy, licensing, and executive recruiting. She can be reached at

[1] BCG Perspectives, August 19, 2014, “The Shifting Economies of Global Manufacturing”, by Harold L. Sirkin, Michael Zinser, and Justin R Rose.

[2] Milwaukee-Wisconsin Journal Sentinel, April26, 2014, “U.S. Manufacturers Growing More Competitive on World Stage,” by Paul Wiseman.

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The Difference between Venture Capital and Private Equity

There seems to be some confusion among pet industry entrepreneurs between the terms “Venture Capital” and “Private Equity”. They are often used interchangeably, when in fact these two methods of gaining access to capital are quite different. Given the number of times I hear people confuse the terms, I thought it time I clarify the difference.


Technically, Venture Capital (VC) is a subset of private equity in that it is money invested in private (versus public) companies. But that is pretty much where the similarity ends.

VC’s invest in very early stage companies, sometimes pre-revenue, and focus on high-tech, biotechnology, IT, and software. Rarely do VC’s invest in consumer products companies. Why? Because when a high-tech company hits a home run, the valuation will skyrocket to a high multiple of REVENUE. I’ve seen software companies valued at 10 to 20 times revenue…and more. In a consumer product business like pet products, a home run would result in a high multiple of CASH FLOW or EBITDA. Usually in the 8 to 12 times range. This rate of return doesn’t justify the significant risks that Venture Capital firms take by investing so early stage.

A VC fund expects to earn a return on a very small percentage of their investments. The typical venture capital investment occurs after the seed funding round as the first round of institutional capital to fund growth (also referred to as Series A round) in the interest of generating a high return through an eventual realization event, such as an IPO or trade sale of the company. In addition to angel investing and other seed funding options, venture capital is attractive for new companies with limited operating history that are too small to raise capital in the public markets and have not reached the point where they are able to secure a bank loan. In exchange for the high risk that venture capitalists assume by investing in smaller and less mature companies, venture capitalists usually get significant control over company decisions, in addition to a significant portion of the company’s ownership (and consequently value).


In simplest terms, private equity (PE) is capital that is invested in private companies. By private companies, I mean companies whose ownership shares or units are not traded publicly, because the owners want to restrict the number and/or kinds of people who can invest in them. PE investors tend to target fairly mature companies, which in some cases may be under- performing or under-valued, with the goal of improving their profitability and selling them for a return on their investment (capital gain) — or in some cases, splitting them apart and selling their assets at a profit.

PE has shown great interest in the pet industry, and currently there are more PE funds looking to invest in pet companies then there are pet companies looking for PE investment. I know this because, as an Investment Banker specializing in the pet industry, I get no less then two requests per week from PE firms looking to invest in the pet industry.

The challenge for pet companies is that PE generally won’t invest in companies with less then $2 million in EBITDA and most prefer at least $3 to $5 million in EBITDA – a fairly small population of companies in our industry. This is because they have to invest a minimum amount in each transaction, and it’s not worth it if the transaction is too small.

A PE firm will typically hold a company in their portfolio for 3 to 5 years. The goal is to triple or quadruple the value of their investment during that time, and be able to generate a nice return for their investors. A recent PE transaction in the pet industry occurred in July 2014 when Frontenac Partners of Chicago, IL made an investment in Cloud Star pet treats of San Luis Obispo.

Mark Kachur, the former CEO of CUNO, a company that was acquired for over a billion dollars described it like this: “I consider private equity and venture capital as opposites. In private equity, you start with the numbers, and then you try to fit everything into the numbers. In venture capital, you start with people, and then you try to figure out what numbers you can make.”

In summary, VC is generally not available to us in the pet industry unless your product is technology focused and has the potential to skyrocket into the universe. PE is available for companies generating $2 million+ in EBITDA. I’ve seen funds that would consider less, but those are few and far between. The good news? All that PE money chasing pet companies has resulted in high demand and high valuations.

Carol Frank of Boulder, CO, is the founder of four companies in the pet industry. As a Managing Director at SDR Ventures Investment Bank, she is a registered Investment Banker and leads the team in executing pet industry transactions including mergers and acquisitions, capital formation and strategic advisory services. She is also the owner of BirdsEye Consulting, the consummate source for pet sector consulting expertise. She can be reached at

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A Crystal Ball into our Economic Future – a morning with Economist Brian Beaulieu – 2.0

345057-money-crystal-ballTwo years ago I wrote one of my first APPA e-update columns about the predictions of one of the U.S.’s foremost economists, Dr. Brian Beaulieu, Executive Director of the Institute for Trends Research (ITR). At the time, he predicted continued growth for the pet industry, which I am happy to say was an accurate statement. All in all, he was pretty spot on about his predictions. Last week I attended the 2013 Denver CEO Forum and heard Dr. Beaulieu speak for the third time about the future of the U.S. and World economies.

Highlights from his presentation:

U.S. Economy:

The US is the world’s largest economy, followed by China and then Japan. We are #1 and will continue to be #1. The opportunities are fantastic. There are currently 316 million Americans and we will grow to 420 million by 2050.

Brian says the next few years look pretty good, but in 2018-2019 there will be economic distress. He feels the rest of 2013 will be rock solid, by mid-2014 there will be some rough waters, but rising again in 2015. He wants us to make sure we are going into new markets and/or gaining market share.

One of the most compelling pieces of information he gave is he believes there is a 90% probability that the stock market will decline in 2014. Brian says that the downturn will be sharp and short – approximately 35%.
This leads me to think it makes sense to lock in our gains at the end of 2013/early 2014, then perhaps jump back into the market after it turns around – end of 2014, early 2015. He recommends being very light on bond fund investments for 2018 and 2019 and going into bond ladders instead of a straight bond fund.

Other tidbits on the U.S. Economy:

  • He is not anticipating hyper inflation
  • When it comes to taxation, Brian expects that taxes in the US will be going up faster then elsewhere because he doesn’t anticipate solutions to our budget and debt issues. (I wonder where he got that idea?…..) The #1 ways to deal with those issues is to raise taxes.
  • Think about retiring or selling your business in 2017 and to start positioning it for sale now, because there will be quite a recession following 2017. The next opportunity to sell is 2029
  • The competition for highly skilled workers will be fierce. Businesses will be hiring people away from other companies at record rates.
  • Between 2030 and 2040, he thinks there will be a depression. Ways to avoid this:
  1. Buy hard, inflation proof assets like real estate and commodities.
  2. Avoid bond funds.
  3. Get into careers that are wrapped around people.
  4. In an age of inflation, pursue a career in harvesting and preserving natural resources.
  5. He suggests we learn three languages: 1. Proper English; 2. French – the language of the intelligence. 3. Dealer’s choice


Brian is very high on Mexico, and urged us to have more exposure to the Mexican economy. Recently they have taken strong action to reduce obesity by considering a tax on “junk food.” Perhaps their new attention to healthy eating will extend to pets as well and will result in a surge in sales for the vast array of health and wellness oriented pet products produced by U.S. companies.

Brian thinks that exporting U.S. made products is one of the Top 10 opportunities in the next few years. The New and Improved Panama Canal will be opening in 2015, resulting in a significant increase in outbound and inbound shipping capacity. That, combined with a more competitive manufacturing environment and the surge in demand for U.S. made products makes this strategy a sensible one.


ITR predicts a 17-20 year trend of rising interest rates. They are only going to go higher from where they are now. In addition to buying inflation-protecting assets, he recommends that you borrow NOW! His tongue-in-cheek comment was: “If for some reason you sleep through the night, you haven’t borrowed enough. Borrow once now, then stop. But don’t go into debt if you are within 10 years of retirement.
Brian recommends finding a way to do business in the “counter-cyclical” or largely unaffected areas of:

• Energy Distribution
• Water Distribution/Conservation
• Exports from US
• Vocational Education
• Health Care
• Food
• Mexico
• Housing
• Funeral Services
• Alcohol
• Security
• 3-D printing
• Natural resources (harvesting/conserving)
• Entertainment

Finally, he is still very bullish on the pet industry. His advice is to focus on high end products with strong brands, strong IP, and solid margins versus a commoditized product. If you don’t protect your competitive advantage, you will get pulverized during the upcoming inflationary period because if your product is a low margin commodity, you won’t be able to support increasing prices even though your costs are increasing.

“It is not necessary to change….survival is not mandatory” – Jonathan Demming

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