Central Garden & Pet’s TRIXIE Deal Targets European Pet-Supplies Leadership

Key Points

• Central Garden & Pet agreed to acquire a majority stake in Germany’s TRIXIE, valuing the deal at a high-single-digit multiple before synergies. Management says the combination could create the world’s largest pet-supplies company and give Central a strong platform in Europe.
• TRIXIE could provide significant growth opportunities through cost savings, European distribution of Central products, U.S. distribution of selected TRIXIE products, e-commerce development and expanded exposure to cat products.
• The transaction is expected to be margin- and earnings-accretive despite TRIXIE’s recent low-single-digit sales declines. Central plans a cautious first-year integration focused on preserving TRIXIE’s culture, while pursuing a gradual turnaround and synergies.

Central Garden & Pet NASDAQ: CENT said it has signed an agreement to acquire a majority stake in TRIXIE, a German pet supplies company, in a transaction CEO Niko Lahanas described as a major expansion of the company’s pet business and a platform for Europe.

Lahanas said the combination would make Central and TRIXIE “the largest pet supplies company globally,” while providing Central with what he called a strong beachhead in the European market. The company did not disclose a purchase price during the call, but management said the acquisition was valued at a high-single-digit multiple before synergies.

“We feel like a lot of the risk has been taken out of the business because of the valuation that we’re getting it at,” Lahanas said. CFO Brad Smith added that the cited multiple excludes anticipated synergies.

Founder Exit Created Acquisition Opportunity

Lahanas said Central first visited TRIXIE in Germany in December and had since conducted diligence and negotiated valuation. He characterized the transaction as a “once-in-a-lifetime opportunity,” noting similarities between the companies, including TRIXIE’s founder-inspired culture.

According to Lahanas, TRIXIE’s founder was seeking to exit the business and establish a foundation. The asset was offered through an auction process, though Central’s management team developed a strong relationship with TRIXIE’s leadership, he said.

“The first meeting we had, it felt like we’d known each other for 10 years,” Lahanas said, describing the cultural fit as an important factor in the deal.

Management said the process required extensive diligence because TRIXIE is a private German company and uses accounting practices that differ from those commonly used by Central.

European Platform and Potential Synergies

Central views TRIXIE as the largest player in Europe’s non-food pet-supplies market, supported by logistics capabilities, product assortment and a sales force. Lahanas said the company’s research indicates that Europe has a more fragmented market and potentially lower acquisition multiples than the U.S.

While Central sees potential for additional European opportunities over time, Lahanas said the company intends first to focus on onboarding and integrating TRIXIE.

“We don’t want to get too ahead of ourselves, though,” Lahanas said. “We’ve got to kind of digest this one around integration and just overall onboarding.”

Management outlined several potential opportunities from the transaction:

• Cost synergies between the businesses.
• Distribution of Central-manufactured products in Europe through TRIXIE’s sales and logistics network.
• Broader U.S. distribution for selected TRIXIE products.
• Development of TRIXIE’s e-commerce capabilities, which Central said are underdeveloped.
• Potentially expanding Central’s exposure to the cat category, where TRIXIE has an existing presence.

Lahanas said Central would initially prioritize nearer-term synergies, while longer-term opportunities could be substantial.

Margins Expected to Be Accretive Despite Recent Sales Declines

Management said TRIXIE’s margins are expected to be accretive to Central’s pet business, and that the transaction itself is expected to be accretive. However, the company said TRIXIE’s sales have declined by low single digits in recent years, reflecting what Lahanas described as a post-pandemic slowdown similar to conditions experienced by pet businesses in the U.S.

Central said it has seen “green shoots” suggesting a return to revenue growth, although management cautioned that a turnaround could take time.

TRIXIE is weighted toward durable pet products, but Central said consumables within the business have recently been growing faster than durables. Lahanas said Central’s consumable dog and cat offerings could help shift TRIXIE’s product mix.

Smith distinguished TRIXIE’s durable-products business from Central’s U.S. durable operations. He said Central has been reducing lower-margin private-label durable product lines in the U.S., whereas TRIXIE is primarily focused on branded, premium-oriented products designed in-house and sold with what management considers compelling margins.

Integration to Emphasize Culture in First Year

TRIXIE will be incorporated into Central’s dog and cat business under the leadership of Senior Vice President of Dog & Cat Glen Axelrod, according to Lahanas. He said the companies already use the same enterprise resource planning system, which could help speed certain integration efforts.

Still, Lahanas said Central plans to proceed carefully, particularly during the first year of ownership, to preserve TRIXIE’s culture and avoid disrupting the business.

“For the first year, we’re going to be really culture, and it’s something that we want to be really careful with and not disrupt,” he said. “We don’t want to screw it up.”

About Central Garden & Pet (NASDAQ:CENT)

Central Garden & Pet NASDAQ: CENT is a leading North American specialty retailer, manufacturer and distributor serving the lawn and garden and pet supplies markets. The company operates through two primary segments: Pet and Garden. In the Pet segment, Central Garden & Pet offers a comprehensive range of products including pet food, treats, accessories, training products and habitat solutions for dogs, cats, birds, fish and small animals. The Garden segment encompasses a wide array of lawn, garden and outdoor living products, such as soils, fertilizers, planters, pest control solutions, landscape lighting and watering equipment.

Central Garden & Pet's product portfolio includes both proprietary and branded offerings.

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