Pet & Animal Care

Coverage Report

Market Intelligence for Business Owners

Q1 2012

Capstone Partners
Investment Banking Advisors

BOSTON | CHICAGO | LOS ANGELES | PHILADELPHIA

Pet & Animal Care

Coverage Report
2011 M&A COMMENTARY Merger and acquisition activity in the pet and animal care industry has improved compared to activity observed in 2009 and 2010. In 2011, there were 42 announced M&A transactions involving U.S. targets, which compares favorably to 22 announcements and 40 announcements in 2009 and 2010, respectively. We believe this increase reflects an improvement in the overall M&A market as well as increased interest in the pet sector, especially by private equity firms. Pet and Animal Care Transactions 45
40 42

CAPSTONE PARTNERS LLC 176 Federal Street 3rd Floor Boston, MA 02110 www.capstonellc.com

Pet & Animal Care Team Kevin Jolley Managing Director (617) 619-3330 kjolley@capstonellc.com

40 35 30 25 20
22 32

Dan Schultz Associate (617) 619-3368 dschultz@capstonellc.com

15 10 5 0 2008 2009 2010 2011

Source: Capital IQ

The most active sectors in the pet industry in 2011 were pet product manufacturers followed by pet product retailers and animal health services. There were 21 pet product manufacturing, seven pet product retailers and six animal health services transactions completed in 2011. Transactions by Industry Segment
Animal Health Manufacturing 7% Pet Products Retail 17%

Animal Health Services 14%

Animal Hospitals 12% Pet Products Manufacturing 50%

Source: Capital IQ

Q1 2012

Pet & Animal Care

INDUSTRY OVERVIEW pet owners spend increasingly more money on food, health care and a host of other products and services to pamper their pets. Pet and animal care is one of the fastest growing consumer products categories. Industry growth is being driven by a variety of macroeconomic factors such as an aging U.S. population and younger couples starting families later in life. Additionally, the industry has been positively impacted by numerous less tangible drivers, most notably the growing humanization of pets. This trend has been seen across a variety of industry segments, as pet owners spend increasingly more money on food, health care and a host of other products and services to pamper their pets. According to the American Pet Products Association, U.S. pet industry spending has grown at a 5.8% compound annual growth rate since 2005, reaching an estimated $51.0 billion in 2011.

Pet Industry Spending

$50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 2005 2006 2007 2008 2009 2010 2011
Source: APPA
Spending by category: Food, 39.0%

Billions

Veterinary Care, 26.3% Supplies/OTC, 23.1% Pet Services, 7.4% Live Animal Purchases, 4.2%

Capstone segments the pet and animal care industry into two primary segments, pet products and services, which includes products and services sold to consumers, and animal health, which includes products and services sold to or through veterinarians. Each segment contains a diverse array of sub-segments, as outlined below. Pet Products and Services Pet Products Manufacturing Food, accessories, toys, cages, cleaning, maintenance, supplies and other manufactured products Pet Products Retail & Distribution Pet stores, direct marketers and distributors Pet Care Services Kennels, training, grooming and other pet care services Animal Health Animal Health & Nutrition Manufacturing Pharmaceuticals, veterinary technology and equipment, animal feed and nutritional supplements Animal Health Services Veterinary diagnostic services, animal health product supply and distribution Animal Hospitals Animal hospitals, clinics and other veterinary services

Q1 2012

Pet & Animal Care

2011 PET & ANIMAL CARE M&A TRANSACTIONS

Announc. Date Target 12/14/2011 PetSimply 12/6/2011 12/2/2011 12/2/2011 9/19/2011 9/16/2011 9/7/2011 8/25/2011 7/25/2011 7/19/2011 7/19/2011 7/19/2011 7/10/2011 7/8/2011 6/30/2011 6/25/2011 6/24/2011 6/15/2011 6/8/2011 6/7/2011 5/17/2011 5/10/2011 5/6/2011 5/2/2011 4/28/2011 4/17/2011 3/21/2011 FURminator Pet Professional Choice Pampered Pets Inn Enterprise EV/LTM Value ($mm) Revenue EBITDA $140.0 $0.9 $2.0 $50.0 $0.5 $25.0 $7.0 3.5x 1.0x 0.9x 0.2x -

Acquirer Doggyloot United Pet Group Pet Food Ltd.

Target Business Description Provides daily deals online for pet owners. Designs, manufactures and sells pet grooming products. Distributor of natural and organic dog food, cat food and pet products in the Southeast.

Lake Norman Pet Spa and Owns and operates boarding and interactive day care alternative services for dogs Resort Corporation and cats. Offers diagnostic and therapeutic, surgical, radiology and electrocardiography services. Owns and operates three dog and cat food and supply stores. Offers veterinary formulated animal supplements and complementary external products that promote health and well-being in dogs, cats, and horses.

Park-Wise Animal Hospital Schaumburg Veterinary Hospital All About Pets Nutri-Vet American Veterinary Supply Kennel-Aire Prestige Pet Products Titterington Veterinary Services Rainbow Veterinary Hospital BrightHeart Holdings Miller's Cats FETCH! Pet Care G&B Marketing Tri-Tronics Animal Haven Complete Petmart WoodLink The Hartz Mountain Corporation Kat Box King Destron Fearing Worldwise Summit Industries - Two Product Lines Dogster Nelson Laboratories Limited Partnership Hollywood Feed Petra Pet

Webster Veterinary Supply Provides veterinary products and services. Doskocil Manufacturing Company For The Earth Entest Biomedical Entest Biomedical VCA Antech For The Earth Cybeck Capital Partners Contech Enterprises Garmin Heartland SPCA PETCO Animal Supplies Kay Home Products Uni-Charm For The Earth Allflex USA Mistral Equity Partners Manna Pro Products VideoEgg MWI Veterinary Supply Manufactures and markets pet management products including kennels, barriers, houses and accessories. Manufactures, imports and sells pet supplies to mass merchandisers, pet supply distributors, and grocery accounts. Owns and operates a veterinary hospital offering animal care services in Eugene, Oregon. Owns and operates veterinary hospital in Burbank, California. Operates a network of veterinary centers in the United States and Canada. Manufactures cat furniture in the United States. Provides pet care services in the United States. Develops and provides pet care products and solutions for veterinarians and pet care enthusiasts. Engages in designing, manufacturing and selling electronic dog training products internationally. Provides animal care services. Operates a chain of pet stores in Ohio, West Virginia, Kentucky and North Carolina. Manufactures bird feeders and birdhouses. Manufactures and markets pet care products for dogs, cats, parakeets, canaries, parrots, cockatiels, finches and goldfishes. Develops, manufactures and distributes cat care products. Produces a line of visual and electronic identification devices and information systems for the animal world. Manufactures pet products for dogs and cats. Comprises animal care brands. Operates pet-focused online communities. Distributes animal health products to over 1,100 veterinary practices.

LTM = last twelve months; EV = enterprise value Sources: Capstone Partners LLC research; Capital IQ; public filings and press releases

Q1 2012

Pet & Animal Care

2011 PET & ANIMAL CARE M&A TRANSACTIONS (CONTINUED)

Announc. Date 3/17/2011 3/14/2011 3/11/2011 3/8/2011 2/25/2011 2/22/2011 2/17/2011 2/14/2011 2/10/2011 2/8/2011 1/24/2011 1/21/2011 1/9/2011 1/6/2011 1/6/2011 Enterprise EV/LTM Value ($mm) Revenue EBITDA $246.7 $65.0 $5.7 $0.3 0.3x 0.7x 11.1x -

Target PetsMD Animal Health International TagWorks MetaMorphix Jolly Pets Joy Pet Foods and Best Feeds Riverdale and Charlinda Animal Hospitals Sherpa Pet Group Noah's Ark Starr Animal Hospital Alpha Pro Tech - Line of Pet Business Bamboo Doskocil Manufacturing Company King's Trail Animal Hospital Freshpet Pro-Pet

Acquirer Pet360 Lextron The Hillman Group Branhaven Dig Pets Hi-Standard Pet Food Entest Biomedical Quaker Pet Group Entest Biomedical Private Buyer Doskocil Manufacturing Company Wind Point Partners Private Buyer MidOcean Partners H.I.G. Capital

Target Business Description Provides pet health information and pet care resources online. Sells and distributes animal health products, supplies, services and technology. Manufactures and supplies metal identification tags for pets and machines for marking pet identification tags. Develops tools, technologies and products for livestock and companion animal health and productivity. Manufactures and provides pet toys and products. Manufactures and provides pet food. Comprises veterinary clinics and hospitals. Manufactures pet accessories and toys. Provides healthcare services for dogs, cats, pets and other animals in California. Manufactures pet beds. Manufactures pet care products for dogs and cats in the United States. Develops and produces pet carriers, litter management products, and feeding and watering products in the United States and internationally. Provides medical, surgical and dental services for dogs, cats and small mammals. Manufactures and markets fresh food for dogs and cats. Provides dog and cat foods.

LTM = last twelve months; EV = enterprise value Sources: Capstone Partners LLC research; Capital IQ; public filings and press releases

SELECTED DEAL BRIEFS VCA Antech acquires BrightHeart Holdings - In July 2011, VCA Antech, a leading animal health care company in the United States, announced the signing of a definitive purchase agreement with BrightHeart Veterinary Centers. BrightHeart operates nine animal hospitals, eight of which focus on the delivery of specialty and emergency medicine. Bob Antin, Chairman and CEO of VCA Antech, stated, "This is a great combination because of our shared focus on the delivery of specialized care. The hospitals are located in areas where VCA has a market presence which will allow us the ability to increase our level of market recognition. Mr. Gino Volpacchio, President and CEO of BrightHeart, also commented, "I am excited to join the VCA management team. The acquisition by VCA will complement BrightHeart's focus in specialty medicine by providing us with vast resources of available training and technology. For the Earth acquires Prestige Pet Products - For the Earth acquired Prestige Pet Products in July 2011. Prestige Pet Products manufactures 100% all-natural pork hides that are slowly smoked to enhance the flavor and contain no preservatives. The Company holds patents on the pork hide smoking process. For the Earth CEO Nelson Grist commented, Acquiring Prestige Pet Products allows us to be the market leader in this technology and allows us to offer a full complement of products and services to the pet industry. This acquisition propels us to a market leader position that we take very seriously. The 100% all-natural pork hide bones, sticks, twists and wraps fit with the natural focus For The Earth Corporation is committed to maintaining.

Q1 2012

Pet & Animal Care

SELECTED DEAL BRIEFS (CONTINUED)

United Pet Group acquires FURminator - In December 2011, United Pet Group (UPG), a division of Spectrum Brands, signed a definitive agreement to acquire FURminator from HKW Capital Partners. FURminator is a producer of deshedding tools, shampoos and other grooming accessories sold at major retailers for dogs, cats and other animals. Spectrum CEO David Lumely quoted, FURminator immediately expands and further strengthens UPGs broad companion animal product portfolio through entry into the large and growing dog and cat grooming category. He also stated, The transaction is expected to be accretive, providing significant global growth opportunities and manufacturing, supply chain and distribution synergies, most notably leveraging UPG's unique global infrastructure to expand sales both internationally and domestically through strong relationships with mass merchandisers and pet stores."
Lextron acquires Animal Health International - In March 2011, Lextron announced the acquisition of Animal Health International for a total enterprise value of approximately $250 million. Animal Health International sells and distributes animal health products, supplies, services and technology. The companys products include pharmaceuticals, vaccines, parasiticides, diagnostics, capital equipment, sanitizers, devices, supplies and dairy lagoon treatment. It serves veterinarians, production animal operators and animal health product retailers. This acquisition will provide an opportunity for Lextron, a distributor of livestock vaccines and supplements, to expand its animal health business. Investment funds affiliated with Leonard Green & Partners, L.P. made an investment in Lextron to support the acquisition. The transaction closed on June 10, and the new company operates under the Animal Health International name. Petra Pet acquires Nutri-Vet - Petra Pet, which received an investment from Imperial Capital in May 2010, announced the acquisition of Nutri-Vet in September 2011. Nutri-Vet is a leader in the pet nutraceutical sector and markets vitaminsupplements, joint-care, dental-care and other health-focused products for dogs, cats and equines. Stephen Lister, Managing Partner of Imperial Capital, stated we are very pleased to be adding the Nutri-Vet team and products to Petra Pet. Combining the innovative expertise of these two companies will lead to exciting new product possibilities in functional and nutraceutical treats." Dean Triandafellos, CEO of Petra Pet commented, "Nutri-Vet brings a comprehensive pet-wellness product offering to Petra Pet that will enhance the existing business. Additionally, Nutri-Vet's established presence in multiple sales channels will be invaluable to the combined business going forward. Through this acquisition, Imperial Capital has provided Petra Pet with the resources required to support and achieve Petra Pet's expansion plans. H.I.G. Capital acquires Pro-Pet - In January 2011, H.I.G. Capital announced that an affiliate acquired a majority interest in Pro-Pet. According to the press release issued by H.I.G., Pro-Pet specializes in the manufacturing of premium and super-premium, private label dry pet food for distribution domestically and around the world. Mike Wright, President and Chief Executive Officer of Pro-Pet, stated With H.I.G.s backing and expertise, we will be well positioned to take advantage of growth opportunities and to better serve our customers in the private label pet food market.

Q1 2012

Pet & Animal Care

SELECTED DEAL BRIEFS (CONTINUED) Peter Cornetta, a Managing Director at H.I.G., stated we look forward to assisting the management team in continuing to grow Pro-Pets product breadth and geographic reach while maintaining its superior service and product offering. MidOcean Partners invests in Freshpet - Also in January, MidOcean Partners, a private equity firm focused on the middle market, announced the firm had made a significant investment in Freshpet, a manufacturer and marketer of fresh, refrigerated food for dogs and cats. The press release announcing the transaction stated a significant portion of the MidOcean investment capital will be used to drive Freshpet's rapid growth and expansion, as it adds more retail distribution and increases its marketing initiatives. Concurrent with MidOcean's investment, Richard Thompson, a MidOcean Management Affiliate, became CEO of Freshpet. David Basto, a MidOcean Managing Director, stated "MidOcean has been evaluating the pet space for some time now, and we found Freshpet's unique and leading position in the marketplace very compelling. He also stated We believe that Freshpet's differentiated brand fits perfectly with MidOcean's proven expertise in driving growth in strong consumer branded companies, and we look forward to working closely with Richard and his team in achieving our shared growth objectives." Wind Point Partners acquires Petmate - Doskocil Manufacturing Company, which does business as Petmate, announced in January that the company had been sold to Wind Point Partners, a Chicago-based private equity firm. Petmate had been previously owned by Westar, a private equity firm in Costa Mesa, California. Petmate develops and produces kennels, dog houses, bedding, litter maintenance, feeding and watering solutions, toys, collars and leads, and pet accessories. According to the press release announcing the transaction, the purchase of Petmate is Wind Points first in the pet product industry and will position Petmate for continued growth through additional acquisitions and new product development. This transaction also involved a change at the CEO level, with Joe Messner taking over as CEO immediately following the transaction. Mr. Messner recently held the position of President and CEO of Bushnell Outdoor Products and has a significant amount of experience in the consumer products industry. Mr. Messner commented, Petmate is an established brand built on a long history of superior customer service, diverse product offerings and a dedication to the health and happiness of pets. I see potential to build from this solid platform for further growth and diversification which will allow Petmate to continue to build strong customer partnerships and increase consumer loyalty. Petmate acquires Bamboo Pet Products - On the same day that it announced the Wind Point Partners transaction, Doskocil Manufacturing Company, which does business as Petmate, announced that Petmate acquired the products and intellectual property rights of Bamboo Pet Products, which had been a division of Munchkin. Joe Messner, the newly appointed CEO of Petmate, stated Bamboo products are an excellent complement to our existing Petmate product families. We are excited about the Bamboo acquisition and look forward to the additional growth opportunities this will bring for Petmate and our retail partners.

ABOUT CAPSTONE PARTNERS

Capstone Partners LLC is a leading national investment banking firm dedicated to serving the corporate finance needs of middle market business owners, investors and creditors. The firm provides merger & acquisition, private placement, corporate restructuring, valuation and financial advisory services. Capstone maintains various industry specialties including one in Pet & Animal Care. The firm also possesses merchant banking capabilities to actively co-invest in transactions. Additional information about Capstone Partners can be found at www.capstonellc.com.

NATIONAL AND REGIONAL LEADERSHIP TEAM

NATIONAL John Ferrara President, Managing Partner (617) 619-3325 jferrara@capstonellc.com

NORTHEAST REGION Kevin Jolley Managing Director (617) 619-3330 kjolley@capstonellc.com

CORPORATE RESTRUCTURING Brian Davies Managing Director (617) 619-3328 bdavies@capstonellc.com

MIDATLANTIC REGION Eric Williams Managing Director (215) 854-4065 ewilliams@capstonellc.com

MIDWEST REGION Ted Polk Managing Director (312) 674-4531 tpolk@capstonellc.com WESTERN REGION David Bench Managing Director (949) 460-6431 dbench@capstonellc.com

VALUATION ADVISORY Ron Adams Managing Director (617) 619-3367 radams@capstonellc.com

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