Dechra agrees £4.5bn takeover offer from buyout group EQT

Veterinary pharmaceuticals company Dechra has agreed a £4.5bn buyout by Sweden’s EQT, in what would be one of the biggest UK private equity deals this year.

The London-listed group on Friday said that the board was recommending EQT’s offer of 3,875p per share, giving the company an equity value of £4.5bn.

The price represents a 44 per cent premium to Dechra’s closing share price on April 12 — before EQT’s interest became public — but is less than the private equity group was initially willing to pay, following a profit warning from the pharma company last month.

Elizabeth Alison Platt, Dechra’s chair, said that the offer was “a compelling opportunity for shareholders to realise, in cash and with certainty, Dechra’s potential for future value creation”.

The deal underscores the appeal of London-listed companies to private equity investors. Since 2018, investment firms have spent almost £80bn buying UK public companies including supermarket chain Wm Morrison, PitchBook data shows. 

Public companies are seen as comparatively cheap relative to their private peers. And many London-listed companies trade at a discount to similar businesses in the US. 

The £4.5bn deal is one of the largest leveraged buyouts to take place in Europe this year at a time when dealmaking has slowed considerably. Private equity groups usually rely on debt to finance their deals but banks have been unwilling to lend amid concerns about the economic outlook.

Since takeover talks between EQT and Dechra were first made public in April, the Swedish private equity group has managed to secure a discount to its initial offer price after Dechra issued a profit warning in May.

EQT had originally offered to pay 4,070p per share for Dechra, which the board recommended. After the profit warning, EQT went back to the table and submitted a revised offer of 3,875p per share, which Dechra has accepted.

If the deal goes through, EQT will expand its footprint in the pet sector. The group owns UK vet clinic chain IVC Evidensia, valued at €12.3bn in 2021, as well as stakes in pet insurer ManyPets and online retailer Zooplus.

The offer comes at a challenging time for the animal health market. In the US and Europe, wholesalers that buy Dechra’s medicinal products have been cutting the amount of stock they hold, which has hit the company’s profit margins. 

Dechra said in May that its operating profit this year would be below the £186mn guidance provided in February. 

The completion of the deal is conditional on shareholder support and approval from antitrust regulators. If approved, it would complete later this year or early in 2024.

“Key to deliverability and timing will be regulatory approval and in particular [the Competition and Markets Authority]. It is a sector and a buyer that the CMA is very much focused on,” a research note published by TD Cowen said. “We would expect the merger review and party discussions to take time. We would caution against aggressive close expectations.”