THE IAMS – P&G DEAL

The end of an era!

Rumours had been in the market for quite some time: The Iams Company is for sale.

But, if one pays attention to all the rumours one hears, M&A appear to be daily routine in the petfood industry.

However, few would have expected that The Iams Company would be sold to an outsider (i.e. a company not already in the industry); and even fewer would have predicted that P&G would value The Iams Company at nearly 3 times its turnover.

This clearly indicates that P&G wishes to establish itself as a serious player in the global petfood market. But the size of the acquisition of The Iams Company is not enough anymore to achieve this objective.

Most likely P&G will continue its acquisition-strategy, to buy itself a decent place in the market. After all, they're accustomed to being # 1 or 2 in the categories in which they operate.

What is likely to happen with the Iams and Eukanuba brands; rather sooner than later?

P&G is primarily a branded goods, grocery oriented company. It cannot be doubted that they will launch the Iams brand in the US grocery outlets on a massive scale. In overseas markets such as Europe it is more than conceivable that the Iams brand will be extended with a range of superpremium dogfoods and be brought to the grocery trade. But probably this will take place after P&G have gathered the experiences of entering the grocery trade in the USA.

If one knows that the Iams brand was originally developed to counter the rapid growth of "commercial petfoods" in the grocery trade – to the detriment of the traditional business of the specialty trade - the historic paradox is evident.

What will happen to the Eukanuba brand?

It will make perfect sense if the Eukanuba brand would remain "specialty trade only"; it's the flagship that grew a.o. through trade-loyalty and bringing that brand to the grocery trade would almost certainly evoke massive negative reactions (read boycot) from the specialty trade, most certainly the independents.

It will be interesting to see how the Iams and the P&G cultures will be merged.

P&G, the highly successful stereotype of traditional marketing and Iams, the acclaimed stereotype of radical marketing!

Will P&G manage The Iams Company at arm's length or do they wish to control the vital areas of their investment such as marketing?

And what will be the effect on the industry of the Iams/P&G deal?

Company-owners wishing to sell their company will seek higher premiums when they sell; whether justified or not. The Iams' acquisition has put new rules to the game!

The big players will rapidly look for acquisition-opportunities to further build critical mass. Smaller, non-niche, operators will (have to) seek alliances with one another in order to stay alive. Capital goods manufacturers will deal with less companies in the future; and these companies will require less capital goods , because their very size will lead to increased manufacturing-efficiencies.

In summary one can say: the petfood industry will never be the same again!

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