The market for high-quality cat food is growing quickly. By capitalising on this trend and implementing its own value creation strategies, 3i has generated a strong return from its investment in MPM.
MPM prides itself on the human grade quality of its pet food, so much so that chief executive Julian Bambridge is prepared to eat it.
The company owns cat-led brands Applaws, Reveal, and Encore. After an investment from 3i Group in December 2020, the private equity firm has sold MPM to the Swiss-based Partners group.
The numbers from 3i’s investment are strong. The company has achieved a 3.2x multiple of invested capital, and an IRR of 29%. Total gross proceeds to 3i are estimated to be £400m, representing a 29% uplift from MPM’s 31 December 2024 valuation.
The balance sheet investment was made in line with the firm’s investment scope – with a focus on “established mid-market businesses, typically with an enterprise value of €100-500m” according to Rupert Howard, a partner at 3i who heads up their UK Private Equity team.
Premiumisation and humanisation
For MPM, 3i’s growth strategy focused on the cat food market. “Valued at $50bn, it has grown at a faster rate than the $80bn dog food market,” says Howard. It is also a market with a high payoff from creating a differentiated product.
“Cats are very picky eaters” he says. This creates a premiumisation trend – owners are prepared to invest in a high-quality food brand if their cat likes it. Because dogs tend to be less selective, there is less of a need to offer a curated product, so the development process is very different.
“Many successful dog food companies have tried and failed to foray into cat food,” he adds.
The focus on cats has proved effective for MPM. At the point of exit, cat food made up a decisive 90% of the company’s revenue.
Besides cats’ eating habits, Howard notes the desire to spend more on high-quality food is driven by the increased humanisation of pets. Owners expect the needs of their animals to be accommodated in just the same way human needs are, and that includes food.
He says the company has found that “pet owners are more likely to reduce their spend on food for themselves than on their cat”.
MPM’s focus has been on making healthy, human-grade products using natural ingredients. “There are no additives or preservatives. They are good enough for humans to eat,” he says. To demonstrate this, the MPM team will often eat the food themselves.
Success in the cat food market also offers regional expansion opportunities, as cats’ tastes are similar around the word.
“If you have a proposition that works, then you’re on a winning footing, because cats will eat it wherever they live” he says. Today, the brand is sold in over 50 markets worldwide.
Value creation
To help grow the business, 3i pursued four key value creation levers. The first involved consolidating the success the company had already enjoyed, by expanding its strong UK and Europe offerings.
Secondly, the firm focused on moving MPM’s offering from being distributor focused to becoming a consumer-facing brand. At the time of the investment, MPM would enjoy shelf space in pet retailers, but lacked a direct relationship with consumers.
To rectify this, the company invested in a refresh of its Applaws brand, focusing on uniform messaging across distribution channels and media outlets, to establish greater brand recognition.
Howard also credits the appointment of CMO Samantha Greenwood, formerly of consumer giants Kraft/ Heinz and Mondelez, for the success of MPM’s branding.
Third, the firm expanded MPM’s operation in the US, home to the largest pet food market in the world. 3i hired Kim Sines as MPM’s US CEO and helped grow the company’s operations in the country from 14% of sales in 2020 to more than 40% at the time of exit.
Finally, 3i expanded MPM’s opportunities online. This involved building new relationships with specialist online pet stores. US-based Chewy has become a top-three customer of the business, itself three times larger than MPM’s previous biggest customer – the European Zooplus.
International turbulence
The business had to adapt to rapidly changing market conditions over the course of 3i’s investment.
“Pet adoption increased massively during Covid” explains Howard. More time at home during lockdowns showed the upsides of having a pet to keep people company, leading to increased rates of pet ownership.
While this increase in market size has benefits for MPM, shipping dislocation risked derailing their progress.
More recently, US President Donald Trump’s ‘Liberation Day’ tariffs hit the pet food industry hard. Wet cat food is primarily shipped from Thailand, which was slapped with 36% tariffs that were ultimately reduced to 19% in August.
This forced 3i to pause its bidding process for the sale of its stake in MPM, just after round one bids had been submitted. “It wouldn’t have been fair to say the bids that people put in two days before liberation day held two days after,” explains Howard.
But tariffs did not prove to be a major setback for MPM. Given the dominance of Thailand in the manufacturing of cat food, Howard says that the tariff was “actually a tariff on the whole industry, so all of our competitors were in the same boat” and the industry quickly moved forward.
Indeed, 3i continued to retain interest from buyers: “The scarcity value of premium businesses meant that a number of people were on the phone, still keen to have conversations.”
This allowed the firm to continue discussions with the most motivated parties from the first round of bids, resulting in the sale to Partners Group.
Looking ahead, Howard is confident the business has a bright future: “it has consistently over-delivered against our investment case” he says.
Howard expects that Partners Group will be able to continue to support MPM’s growth internationally.
“There are very few genuinely global cat brands… therein lies the opportunity for MPM”.
