Dechra Pharmaceuticals plc (LON:DPH) has announced it has acquired Med-Pharmex, Inc. Med-Pharmex is a leading veterinary pharmaceutical manufacturer based in Pomona, California. The total consideration paid was US$260.0 million1 (£221.5 million) 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 the fundraising announcement on 21 July as the Potential Acquisition.
Highlights of the acquisition:
· Provides further product scale to Dechra’s operations in the USA, the world’s largest animal health market
· Approximately 75% of revenues in companion animal (CAP) and equine, with the balance in food producing animal products (FAP)
· Adds a pipeline of further products
· Leverages Dechra’s existing US infrastructure with a minimal increase in SG&A
· Material, short and medium term, synergy benefits in the context of the acquisition
· Manufacturing facilities will provide additional capacity for the Group
· 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. 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 (£5 million in capital expenditure).
For the 12 months ended 31 December 2021, Med-Pharmex generated audited revenues of US$43.0 million and an adjusted EBITDA of US$15.3 million. Audited gross assets as at 31 December 2021 were US$77.0 million. Dechra expects the acquisition of Med-Pharmex to be immediately accretive to underlying earnings per share. Following completion of the acquisition, the Group’s leverage is expected to be c.1.8x net debt to EBITDA as at 31 December 2022.
Ian Page, Chief Executive Officer at Dechra Pharmaceuticals commented:
“I am delighted that we have completed the acquisition of Med-Pharmex, a company that I have been in dialogue with for a number of years. The US market is highly consolidated, therefore this is a unique opportunity to add several new products to our portfolio, enter the US FAP market and improve the manufacturing footprint for our North American business.”
Footnotes:
1. Translated at US$ 1.1738: £1.0000
Underlying results exclude items associated with areas such as amortisation of acquired intangibles; downward remeasurement where there is not an intangible asset and accounting for the passage of time in respect of contingent considerations; impairment of assets; cloud computing arrangement costs; expenses relating to acquisition and subsequent integration activities; rationalisation of the manufacturing organisation; loss on extinguishment of debt; and the revaluation of deferred tax balances following substantial tax legislation changes. Management utilises this measure to isolate the impact of exceptional, one-off or non-trading related items and consequently the classification of these items requires judgement.
