• by Thom Forbes  @tforbes, January 10, 2017

Chocolate and dogs usually do not mix but don’t tell that to Mars Inc. The maker of such delectables as Peanut M&Ms for two-legged creatures and Pedigree for canines is paying $7.7 billion cash dollars for VCA, a chain of nearly 800 animal hospitals and 60 diagnostic clinics in North America. It’s also assuming $1.4 billion in debt, putting a total value of $9.1 billion on the deal for a company that was founded with one facility in Los Angeles in 1986 and now trades on NASDAQ under the symbol WOOF.

If the deal is approved by its shareholders, VCA will be a separate business unit within Mars Petcare, which is based in Brussels, Belgium, and already operates Banfield Pet Hospital, Bluepearl and Pet partners, and will continue to be led by Bob Antin, CEO, president, chairman and a founder of VCA, according to the release announcing the deal.

Poul Weihrauch,the president of Mars Petcare, tells the New York Times’ Leslie Picker that “Mars’ ‘love story’ with pets goes back to 1935. That year, Forrest Mars Sr. bought Chappell Brothers, giving the candy company access to Chappie brand canned dog food.

“Today, Mars has 39 brands in its Petcare portfolio, its second-largest division. With this deal, Petcare will become its largest business, as VCA adds about $2 billion in revenue,” Picker continues. 

In a letter to its 23,000 employees, VCA’s founders “said they had ‘mixed emotions’ when approached by Mars but ultimately decided the offer was best for shareholders and employees, reports James F. Peltz in the Los Angeles Times. 

After some rough times follow the 2008 recession, “VCA and others in the industry have capitalized on a growing willingness among pet owners to spend more heavily for their animals,” Peltz writes. “VCA’s flagship hospital in West Los Angeles offers 24-hour emergency care, a team of surgeons, a cancer center, surgical suites and a physical therapy center.” 

It “has been criticized at times by some customers for requiring tests that can be costly,” he continues, “but … other customers have said they appreciate the advanced options VCA offers.”

The deal will increase the number of animal hospitals Mars owns in North America “by about 800, to 1,900, although this remains a small proportion of the region’s 24,000 clinics, which are mostly independently owned,” report Lindsay Whipp and James Fontanella-Khan for Financial Times. “Bankers say there could be other moves to consolidate the fragmented market, including further deals by Mars. Importantly, the deal gives Mars ownership of VCA’s reference laboratories business, which is used by 17,000 of North America’s animal hospitals, making it the largest in the region.”

For VCA shareholders, the acquisition is apparently a bit like learning your old dog has learned a nifty new trick.

“Jim Cramer has always said that the humanization of pets is one of the greatest investing themes out there. But he still didn't see it coming when privately held food giant Mars paid a huge premium for Veterinary Centers of America, known as VCA,” writes CNBC’s Abigail Stevenson about the CNBC “Mad Money” host’s reaction to the deal. “VCA shareholders received a 31% gain on Monday with Mars' $7.7 billion bid.” 

But it’s probably worth it. What with Amazon ratcheting up competition in the kibbles category, “anything that makes a company less dependent on pet food and more dependent on animal health is a winner in his book,” Stevenson writes.

Pet owners in the U.S. spent an estimated $62.75 billion, according to the American Pet Products Association — up from $51 billion only five years ago,” reports Thomas Heath for the Washington Post. “As pets move from the doghouse into the house, they have become part of the American family. As a result, many owners have grown inured to the health care costs that go with keeping their beloved pets around as long as possible,” he writes.

“The spending continues to go up, year after year,” Bob Vetere, president of the APPA tells Heath. “This humanization trend is no longer just a myth. It’s past the tipping point. We are seeing health benefits being backed up more and more by science. We can see that pets are keeping us healthy, and as a result we are trying to keep them healthy longer.”

Make that WOOF a very loud HOWL.