Situation Overview

Pet Qwerks was founded by Jim Glick in 2003 by accident. He created an interactive, blinking, talking plastic ball for his own dog. Soon, people were asking if they could order one from him and Pet Qwerks was born. Nearly two decades later, the Company had grown into a major player in nylon dog chews and pet toys. In 2020, Jim turned his eye toward retirement and hired Carl Marks Advisors (CMA) to sell the Company to a larger strategic partner.

Given the strength of the Pet Qwerks brand and the Company’s position in nylon chews, CMA was confident that they would receive strong interest from all of the major strategic buyers. The $70 billion U.S. pet industry has been recently bolstered by the “humanization of pets.” Pet parents increasingly view pets as part of the family and are willing to spend increasingly larger dollar amounts on higher-quality goods and services for them.

Sales Process

Carl Marks Advisors ran a wide-ranging sell-side process encompassing the major strategic buyers in the pet industry. After a highly competitive bidding environment, the Company entered into exclusivity with Petmate, a portfolio company of Olympus Partners. Pet Qwerks had been a strong player in the ‘durable’ pet goods section for quite some time. Meanwhile, Petmate had long been a leader in offering products that strengthen the bonds between pets and their families. Pet Qwerks offered another product—nylon chews—to Petmate’s extensive product portfolio. It also offered them a product that has a more frequent replacement cycle, giving Petmate another opportunity to be in front of their customer base more often. Additionally, as a startup brand, Pet Qwerks had developed their sales channels in the “off price” and online categories. Amazon and Chewy had been incredibly strong channels for them, and they became   very well established, not just online, but on social media as well. The Pet Qwerks deal would allow Petmate to continue to build out its own extensive online presence.

Unique Challenges

A week after signing the Letter of Intent (LOI), COVID-19 hit. Understandably, CMA had to initially pause to assess the environment and how the pandemic would affect business and the broader economy. Because of that strong online presence mentioned previously, Pet Qwerks was fortuitously positioned during the pandemic, as brick and mortar pet stores were shutting down. Coupled with a surge of pet adoptions and Pet Qwerks’ business only picked up steam during Q2. CMA was fortunate in that the buyers got to meet Jim and Pet Qwerks’ leadership before COVID travel restrictions grounded everyone. However, the lenders and the operational teams weren’t so lucky. CMA had to run virtual tours of manufacturing plants using YouTube videos.

Result

There was quite a bit of learning on the fly and adapting quickly, but in the end Pet Qwerks had a dedicated management team and a committed buyer.

By early summer, the deal was back on track. Though the situation demanded a little more patience by all parties, by mid-August the transaction had closed and was one of the very first lower middle market deals to be completed during the pandemic.