July 22, 2015 / 4:40 PM / in 3 years

UPDATE 1-Investors lap up shares of pet-food maker Blue Buffalo in debut

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By Neha Dimri

July 22 (Reuters) - Shares of Blue Buffalo Pet Products Inc rose as much as 37 percent in their debut, valuing the maker of Blue Wilderness and other dog and cat foods at $5.38 billion and highlighting growing demand for “healthier” meals for pets.

The company - whose motto is “Love them like family. Feed them like family” - says it uses real chicken, lamb and fish and not poultry by-products, corn, wheat, artificial preservatives or colors.

Nestle SA, which makes Purina branded pet food, has questioned those claims in a lawsuit.

But that didn’t deter investors.

The offering raised $676.6 million after the shares were sold at $20 each, well above the expected range of $16-$18. Stockholders sold all the 33.8 million shares.

The stock touched a high of $27.45 on the Nasdaq on Wednesday.

Americans are expected to spend nearly $61 billion on pets in 2015, of which more than a third will be on food, according to American Pet Products Association. (bit.ly/1lCH45j)

“As baby boomers retire they have pets and money to spend and margins in pet businesses are generally high,” said Josef Schuster, founder of IPO investment firm IPOX Schuster LLC.

Founded in 2003, Blue Buffalo now has a 6 percent share of the U.S. pet-food market, which accounts for nearly two-thirds of the global market.

The Wilton, Connecticut-based company is the second U.S. maker of premium pet foods to list in the past eight months.

Shares of Freshpet Inc, whose products include chicken strips with flaxseeds and pet ice cream and cookies under brands such as Vital, Nature’s Fresh and Dognation, have risen about 23 percent from their IPO price.

The industry has also become a hunting ground for deal makers. Mars paid $2.9 billion for Procter & Gamble Co’s pet care business in April 2014 and JM Smucker Co struck a deal in March for Milk-Bone and Kibbles ‘n Bits owner Big Heart for $3.2 billion.

Blue Buffalo’s revenue nearly doubled in the last three years to $917.8 million in 2014, with most coming from dry food for cats and dogs.

Nearly 70 percent of its sales come from large chains such as PetSmart Inc and Petco Holdings Inc.

Private-equity firm Invus Group LLC holds a 62 percent stake in the company.

JPMorgan, Citigroup, Barclays, Deutsche Bank and Morgan Stanley are among the underwriters to the IPO. (Reporting by Neha Dimri in Bengaluru; Editing by Saumyadeb Chakrabarty)

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