Veterinary drug company Dechra has agreed a £4.5 billion buyout by Sweden’s EQT, in one of the UK’s biggest private equity deals this year.
The London-listed group said on Friday that the board had recommended an EQT offer of 3,875 pence per share, giving the company an equity value of £4.5 billion.
The price represents a 44 per cent premium to Dechra’s closing share price on April 12 — before the EQT interest went public — but less than what the private equity group was initially willing to pay, after a profit warning from the drugmaker last month.
Dechra’s president, Elizabeth Alison Platt, said the offering was “a compelling opportunity for shareholders to realize, critically and with certainty, Dechra’s potential for future value creation.”
The deal underscores the attractiveness of London-listed companies to private equity investors. PitchBook data showed that since 2018, investment firms have spent nearly £80 billion buying UK public companies including supermarket chain Wm Morrison.
Public companies are seen as relatively cheap compared to their private counterparts. Many companies listed in London trade at a discount to comparable companies in the United States.
The £4.5bn deal is one of the biggest acquisitions to take place in Europe this year at a time when deal-making has slowed dramatically. Private equity groups usually rely on debt to fund their deals, but banks are unwilling to lend amid concerns about the economic outlook.
Since acquisition talks between EQT and Dechra were first announced in April, the Swedish private equity group has been able to secure a discount to the initial offering price after Dechra issued an earnings warning in May.
EQT originally offered to pay Dechra 4,070p per share, which was recommended by the board. After the earnings warning, EQT returned to the table and made a revised offer of 3,875 pence per share, which was accepted by Dechra.
If the deal closes, EQT will expand its presence in the pet sector. The group owns UK veterinary clinic chain IVC Evidensia, worth €12.3 billion in 2021, as well as stakes in pet insurance company Manitice and online retailer Zooplus.
The offer comes at a difficult time for the animal health market. In the United States and Europe, wholesalers who buy Dechra medicinal products have reduced the amount of inventory they hold, hurting the company’s profit margins.
Dechra said in May its operating profit this year would be below guidance of £186m in February.
Completion of the transaction is conditional on shareholder support and approval by antitrust authorities. If approved, it will be completed later this year or early 2024.
Key to delivery and timing will be regulatory approval and in particular [the Competition and Markets Authority]. “It is a sector and buyer that the CMA has a strong focus on,” said a research note published by TD Cowen. We expect the merger review and partisan discussions to take some time. We’ll beware of strong predictions.”
