Allied Leads Its Own Pet Investment –

Allied Capital Corp. (NYSE:ALD) is no stranger to animal companionship. Over the years, the Washington, D.C.-based business development company (BDC) has served as a lender for a number of pet-related transactions, such as BancBoston Capital’s and Ascendant Capital’s acquisition of Aspen Pet Products Inc.; J.W. Childs’ buyout of Hartz Mountain Corp; TA Associates’ investment in United Pet Group Inc., and Brockway Moran’s purchase of Colibri Holding Corp.

“We like what we’ve learned about the [pet] industry as a whole.” said Mike Grisius, a managing director at Allied. “It’s a space that is growing rapidly, and the growth is historically independent of the economy, which is what you always want in an investment.”

Indeed, the BDC likes the sector so much that it decided to sponsor its own pet-related investment earlier this month; acquiring veterinary hospital operator Healthy Pet Corp. in a $64.4 million secondary transaction from Greenwich Conn.-based buyout shop Catterton Partners. The investment took the form of senior secured notes and a majority of Healthy Pets’ common equity. Additionally, Allied provided an $8 million unfunded senior credit facility to the company upon the deal’s close.

Healthy Pet was founded in 1997 to consolidate the veterinary services industry through the acquisition of profitable veterinary hospitals in the eastern U.S. Since its inception, the Fairfeild, Conn.-based company has acquired 36 veterinary hospitals in nine states-most, however, are located in Connecticut, Massachusetts, Pennsylvania and Virginia.

The U.S pet care services industry has grown steadily at about 7% per annum over the past 10 years, while U.S. pet ownership has grown at approximately 13% per year over the past 20 years, according to a spokesperson at Allied.

Grisius attributed the sector’s growth to an overall shift in pubic consciousness. He noted that 40 years ago, many pet-owning families considered their pet an “outdoor animal”. But with increasing suburban sprawl and the advent of animal rights, that tendency has all but vanished. “Today, most pets are treated like members of the family,” he said.

Grisius also linked the growth in the pet marketplace with the ubiquitous baby-boomer trend, noting that many upcoming seniors are “empty nesters” who have turned to pets-mostly dogs and cats-for companionship. “If a health issue arises, oftentimes [baby-boomers] are not shy about taking their animal to the vet and spending whatever is necessary to ensure its health,” he said.

With regards to the Healthy Pet itself, Allied’s attraction to the comapny rests in its business model, which makes a clear distinction between management and medical staff. “The company’s management can focus on improving the operations and efficiency of the company while the doctors are free to focus on providing the best medical care they can,” Grisius said, noting that many veterinary hospitals have suffered long bouts of stagnation and revenue decline because they are run by doctors more interested in practicing medicine than running a business.

Going forward, Allied will adopt, and financially back, Healthy Pet’s strategy of growth through acquisition. Targets for Healthy Pet include veterinary practices that generate approximately $850,000 or more of annual revenue, according to the company’s website.

In other pet-related private equity news, the Ontario Teachers’ Pension Plan, late last month, agreed to buy Doane Pet Care Co., a debt-ridden producer of pet-foods, for $1 billion. Despite the trouble with Doane’s balance sheet (the company is more than $450 million in debt), the Nashville, Tenn.-based business is the largest manufacturer of private-label pet foods in the U.S., and is the chief supplier of dry pet food to Wal-Mart Stores Inc. Doane’s selling party includes private equity firms JPMorgan Partners, Summit Capital and DLJ Merchant Banking Partners.