Steve Ball, the former CEO and board member of Zesty Paws, helped lead the pet supplements company to extraordinary growth that eventually led to its sale to Health & Happiness (H&H) Group International Holdings Ltd. for $610 million.
"I'll be the first to say timing was everything," Ball said during the inaugural Denver Smart Business Dealmakers Conference. "Very different time now than it was at the end of 2021. So definitely feel a bit of luck in that. But I also think we were strategic in the sense of how we went about it."
Private equity brought Ball into the pet supplement company because the business was scaling rapidly. Ball had a background in the pet space, but also in consumer. The timing of that opportunity came when he was in between different ventures. Though he says he didn't want to go back into pet, as he was enjoying being in other spaces, he decided he'd take a look.
"And I'm glad I did," Ball says. "The business was fantastic from an economic standpoint. It was a digitally native brand, which I really wanted to be a part of. Most consumer brands today are being built in the digital realm first, and then going offline; it's a much better and more efficient way to build it. And then third was it was a brand that I knew I could work with and put the finishing touches on versus a turnaround, which is really hard for those who have built consumer brands."
When he got there in 2019, the business was already being looked at by private equity — strategics believed it wasn't yet big enough.
"But we knew we had lightning in a bottle at that point," he says. "We were getting offers that first year, first year and a half. And of course, that was immensely tempting to the private equity folks that were currently bought in because they had bought when it was a lot smaller."
About a year into it, they got an offer private equity and they were about to go exclusive with them, but the PE firm pulled the plug on the deal for various reasons.
"And so we were lucky in the sense that we passed on that opportunity to sell for about half the price we sold out a year later," Ball says.
When he came into the business, he says the single largest LP through the private equity group that bought the business, as a condition for his investment, said the business needed to run on EOS, the Entrepreneurial Operating System, which is a set of concepts and tools aimed at improving a business. That, however, required making several changes. Even though the business was said to be operating using the system, he says the meeting structure and format weren't following EOS, and there was no champion or to help others understand the system. There were also business problems. The company was pursuing adjacencies before it was positioned to do so, they had personnel gaps in certain areas and no documented processes. So, while they had to quickly scale the business in terms of personnel, because the business had far outgrown the team, the business lacked simple things such as an employee handbook, which made efficient onboarding a challenge.
Scaling the teams was also a challenge because while knowledge passed easily from word of mouth when it was just a few people, as it grew that method was untenable.
Ultimately, after systematically addressing the challenges within the business, Zesty Paws was acquired in late 2021 by H&H. Part of that Ball attributes to forces largely outside the business.
"Well, it goes out saying: great business, great category, great tailwind, we had all of that," Ball says. "Economics were there, tailwinds in the category were there. We came out of the pandemic, pet adoption and all the wind in our sails and category still growing at nice, healthy double digits."
But internally, the company had not only improved, but it also built and established marketing processes on Amazon that helped it realize success through that channel, which was valuable — so valuable the company sold at multiples that set a new watermark for the industry.
"And the reason why is because we had this moat, which is the reviews, ratings and rankings that we had on Amazon," Ball says. "And this was hard to do. We had over 250,000 five-star reviews. If you have any sense of Amazon and online ecommerce, that takes time to do; it's very hard to do. And so we had all of that and that was really attractive because we had this Amazon component, this ecommerce component, that most businesses in CPG just don't have."