JAB Holding has tightened its grip on the booming US pet care industry with a $1.4bn investment in Fairfax Financial Holdings’ pet insurance business, a week after US regulators raised concerns about the European private equity firm’s growing influence in the American veterinary market.
JAB has acquired stakes in two companies from Fairfax, taking over its interests in Crum & Forster Pet Insurance Group and Pethealth in a deal announced on Monday.
The investment comes a week after regulators at the US Federal Trade Commission intervened in JAB Consumer Partners’ acquisition of SAGE Veterinary Partners, forcing the JAB investment vehicle to divest its veterinary clinics in Texas and California to prevent it from forming local monopolies. JAB must also give notice to the agency for future clinic acquisitions.
JAB began acquiring US veterinary clinics in 2019 and has since moved into the $2.8bn North American pet insurance market, challenging rivals such as Mars and Nestlé. In-force premiums in the sector more than doubled between 2018 to 2021, according to the North American Pet Health Insurance Association (Naphia).
Stuck at home during lockdowns, Americans increased spending on pets, with ownership growing from 67 per cent to 70 per cent of US households between 2019 and 2021, according to the National Pet Owners Survey.
Of 175mn North American pets. only 4.4mn are insured, according to Naphia, providing substantial room for growth.
In taking over Fairfax’s interests in the pet insurance businesses, JAB will pay $1.15bn cash and $250mn in seller notes. As part of the deal, Fairfax will invest $200mn in JAB’s consumer fund JCP V.
The group, which also owns brands such as Pret A Manger, Krispy Kreme and Panera Bread, estimates that revenues and gross written premiums from its global pet insurance investments will be more than $1.2bn by 2023.
Dirk Beeckman, chief executive of JAB’s pet insurance portfolio, said: “Today’s transaction is a major milestone for us in our mission to become a global leader in pet insurance and the pet health ecosystem.”
Prem Watsa, the founder, chair and chief of Fairfax, said: “We expect JAB to soon become leaders in pet healthcare and pet insurance globally.”
The deal is expected to close in the second half of the year.
The Financial Times reported last year that JAB, which manages the wealth of Germany’s billionaire Reimann family, was seeking to raise a $5bn fund to extend its deal spree in the sector.
However, Holly Vedova, director of the FTC’s bureau of competition, has warned that “private equity firms increasingly engage in roll-up strategies that allow them to accrue power off the commission’s radar”, and that, under the terms of its recent order on the SAGE acquisition, JAB must also obtain prior approval from the agency for future deals to acquire speciality or emergency vet clinics.