Acquisitive animal drug-maker Dechra Pharmaceuticals’ (DPH) latest deal has strengthened operations in Australasia, potentially boosting margins and providing a springboard for growth in Asia.

The Cheshire-based outfit has agreed to buy cat and dog-focused medicine-maker Apex Laboratories for £31.3 million, which is 10.4-times earnings before, interest and tax (EBIT).

Dechra already sells its products in the region through third parties, but this deal moves it directly into a market with some 4.2 million dogs and 3.3 million cats for the first time.

In a sign of Dechra’s growth ambitions, Apex will be the base for the group’s expansion plans not only in Australasia, but Asia too.

Web - Dechra - 16 September 2016

N+1 Singer’s Chris Glasper estimates that the deal could be 4% to 5% earnings per share (EPS) accretive on a full-year basis.

‘There is a medium term opportunity for Dechra to bring its products currently sold by third parties back in house, thus recapturing the margin currently paid away to distributors,’ he said. ‘We expect this to happen progressively over the next five years.’

Investec’s analysts were equally bullish on the deal’s potential. ‘This bolt-on acquisition not only brings a portfolio of established products, but represents infrastructure through which Dechra’s existing portfolio can be channelled in newer regions.

‘In our view, the acquisition is strategically sound, allowing for (over time) the disintermediation of export partners/distributors to maximise the value opportunity,’ they added.

This is the latest deal in Dechra’s acquisition programme. It closed three international takeovers in the year to 30 June, which strengthened its US business and moved it into Mexico.

So Dechra announcing an acquisition should not surprise the market. Shares did move 1.2% higher to £13.76 shares as the market welcomed the transaction.

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Issue Date: 16 Sep 2016