Dechra/EQT: expect competition authorities to vet pet drug takeover

Norse goddess Freya rode a chariot pulled by cats. Sweden’s EQT has borrowed the name for its bid company buying veterinary drugmaker Dechra for £4.9bn, including debt. On Friday, the London-listed group’s board recommended the offer, which is a 40 per cent premium to the three month undisturbed share price. A compliant purr from shareholders seems likely given the deteriorating outlook for vet and pet products.

Dechra is a long-running success story. Listed at the turn of the millennium, it has flourished under the stewardship of chief executive Ian Page. A near 50-fold total return has beaten the UK pharma and biotech sector by more than 10 times since 2000. While its loss is a blow for the diminished UK market, the offer is good enough to get the deal through.

The price is 25 times Dechra’s expected ebitda over the next 12 months. The offer is 5 per cent lower than the initial one in April, before it warned about US destocking and weaker EU trading. Operating profits will be “materially” below the £186mn forecast in February, it said on Friday.

That may push the multiple higher. But it will still be below the 29 times forward ebitda on which US-listed Pfizer spin-off Zoetis trades. The latter’s higher profit margins explains the difference.

Competition regulators may present an obstacle given EQT’s already sizeable footprint in the pet and vet sector. EQT says it has no plans to combine Dechra with IVC Evidensia, a business of 2,500 veterinary centres across Europe it owns alongside other private equity groups. But the UK’s Competition and Markets Authority is already concerned about horizontal integration in vet care. About half of the UK’s independent vets have been rolled up by bigger groups in the past decade.

Vertical overlap between Dechra and IVCE might pique the CMA’s interest. Perhaps hamingja — Norse luck — would have been a better name for the bidco tasked with getting this deal through.