Dechra Pharmaceuticals (LON:DPH) has acquired Florida-based veterinary dermatological business DermaPet as part of its effort to become a leading supplier in this market.
It is paying US$64 million in total, of which US$42 million has been paid on completion.
DermaPet develops and markets a range of dermatological preparations, including shampoos, conditioners and ear products, for the US and overseas companion animal markets.
These products are distributed through the same channels as Dechra’s current US product portfolio.
In order to finance the acquisition, the group secured a new £78 million four year bank facility, making the acquisition non-dilutive, as was highlighted in finnCap’s Morning Note Report today.
The broker reaffirmed its 'buy' recommendation for the stock, and is currently preparing to revise its forecasts and price target for the company upwards.
According to finnCap, DermaPet could add 20% to earnings and said its price target would be increased from the current 533 pence to over 600 pence.
The stock last changed hands at 508 pence after rising 3% in the morning after the announcement was made.
The price that Dechra agreed to pay was deemed “fair”.
Payments of US$1 million are due on the second and fourth anniversaries of the completion date, while US$15 million will become payable between the second and sixth anniversaries of completion, should DermaPet achieve revenues of over US$15 million in any 12 month period after the first year of completion.
If revenues top US$20 million, Dechra will owe a further US$5 million.
With the acquisition, the group’s US portfolio increases with five granted patents and one pending.
Dechra noted that dermatological problems are the most frequently diagnosed and treated conditions in pets.
DermaPet posted revenues of US$6.9 million in the first half and pre-tax income was US$3 million. Revenues in 2009 amounted to US$10.7 million with pre-tax profits of US$4 million.
Dechra expects the new asset to be “materially earnings enhancing” in its first full year of ownership.
“The DermaPet brand and the high quality natural product line is a perfect fit with our existing dermatological range and accelerates Dechra's strategic objective of becoming a leading supplier of specialist veterinary exclusive products in this key market,” said chief executive of Dechra, Ian Page.