Vet products group announces £221m acquisition of American target

Northwich-based vet products group, Dechra Pharmaceuticals, has acquired a California-based veterinary pharmaceutical manufacturer, for £221.5m.

Med-Pharmex, Inc is based in Pomona, California.

The acquisition is on a debt-free and cash-free basis, and was subject to normal closing adjustments.

The acquisition will be funded from existing available debt resources.

Med-Pharmex is the acquisition referred to in Dechra’s fundraising announcement on July 21, as a potential acquisition, when the group announced it had acquired US-based Piedmont Animal Health, for £175m in cash.

Dechra says the Med-Pharmex deal provides further product scale to its operations in the USA, the world’s largest animal health market.

It also adds a pipeline of further products, leverages Dechra’s existing US infrastructure with a minimal increase in SG&A, provides material, short and medium term, synergy benefits in the context of the acquisition, gives additional manufacturing capacity for the group, and will provide attractive financial returns, immediately accretive to underlying earnings per share.

Dechra has known Med-Pharmex for a number of years, and it has been a long term acquisition target, it said.

Med-Pharmex, which employs approximately 130 people, was founded in 1983 and serves the CAP, FAP and equine markets.

Approximately 75% are CAP and equine products, the majority of which fit into Dechra’s therapeutic sectors.

Med-Pharmex manufactures its own products at its facilities in California, with capacity which Dechra plans to utilise for its own manufacturing strategy over time. It has expertise in topical, oral and certain injectable products.

The majority of Med-Pharmex’s revenue is derived from white label products which are sold through distributors. Dechra intends to bring some of these products in-house and sell through its own sales and marketing channels, which will provide a material synergy benefit.

In the longer term, synergies will also be realised from the integration and improved utilisation of the manufacturing facilities. There will be some incremental investment in the operations of the business, around £5m in capital expenditure.

For the 12 months ended 31 December 2021, Med-Pharmex generated audited revenues of $43m and an adjusted EBITDA of $15.3m. Audited gross assets as at 31 December 2021 were $77m. Dechra expects the acquisition of Med-Pharmex to be immediately accretive to underlying earnings per share.

Following completion of the acquisition, the group’s leverage is expected to be c.1.8x net debt to EBITDA as at 31 December 2022.

Ian Page, Dechra chief executive said: “I am delighted that we have completed the acquisition of Med-Pharmex, a company that I have been in dialogue with for a number of years.

“The US market is highly consolidated, therefore this is a unique opportunity to add several new products to our portfolio, enter the US FAP market and improve the manufacturing footprint for our North American business.”

Panmure Gordon analysts, Dr Mike Mitchell and Dr Julie Simmonds described the acquisition as “slightly toppy in our view” but added: “There is clearly an opportunity here for Dechra to further augment its ongoing strong performance in the North American CAP and equine markets, while also entering the US FAP market.

“The deal also adds product pipeline and additional North American manufacturing capacity. We reiterate our Hold recommendation and will look to FY results due 5th September for further detail.”