Investors seem to be a little concerned that animal medicine-maker Dechra Pharmaceuticals (DPH) is over-paying for veterinary products company Genera. Dechra is paying €23.66 a share for the Croatian company, a hefty 42.5% premium to its closing price on Friday, valuing the business at  €51.4 million.

To put this into perspective, that is almost twice Genera's €28.4 million reported 2014 sales, and implies an enterprise value to earnings before interest, tax, depreciation and amortisation, or EV/EBITDA, of 16-times. These a eye-watering multiples so its perhaps unsurprising that investors appear underwhelmed, with Dechra's share price inching 13p lower to 917.5p.

The deal is being funded by the £860.5 million cap’s existing debt facilities.


Web - Dechra - 03 August 2015

Dechra's agreed purchase of Marijan Hanzekovic's 63.3% stake means the UK company must also make the same offer for the rest of the stock, with the mandatory purchase of the rump assuming Dechra gets the nod from 75% of shareholders.

The rationale for the deal, according to Dechra, is expansion into poultry vaccines, plus opening up three new sales territories, including Slovenia and Bosnia. There are other perceived benefits too. Genera, which also has human health and agro-chemical divisions, complements Dechra’s food producing animal products business and lowers its manufacturing costs.

Shore Capital analysts are back the deal. ‘For Dechra this appears to us to be a strategically important acquisition taking the company into one of the fastest growing segments in animal health (vaccines) and bolstering the food producing animal business as well as diluting the franchise from its current dependence on antibiotics which have been a source of pressure on sales and margins since the acquisition of Eurovet (2012).’

But anticipated to be earnings neutral for two years following completion, which is expected in November, this is certainly no bargain buyout.

Issue Date: 03 Aug 2015