REG - Animalcare Group PLC - Conditional acquisition of Randlab

AnimalcareAnnouncement

03/12/2024 07:30

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RNS Number : 5772O  Animalcare Group PLC  03 December 2024

This announcement contains inside information for the purposes of Article 7 of
Regulation (EU) 596/2014, as it forms part of domestic law by virtue of the
European Union (Withdrawal) Act 2018 ("MAR"). Upon the publication of this
announcement, this inside information is now considered to be in the public
domain.

 

Animalcare Group plc

("Animalcare", the "Company" or the "Group")

Conditional acquisition of Randlab

3 December 2024. Animalcare Group Plc (AIM: ANCR), the international animal
health business, is pleased to announce that its newly incorporated Australian
entity, Animalcare Australia Pty Ltd, has entered into a conditional share
purchase agreement to acquire the entire issued share capital of each Randlab
Australia Pty Ltd (and its wholly owned subsidiary, Randlab (New Zealand)
Limited), Randlab Pty Ltd and Randlab Middle East Veterinary Medicine Trading
Single Owner L.L.C. (together "Randlab"),  a leading equine veterinary
business, for an enterprise value of A$120.0 million (approximately £62.2
million¹), on a debt-free, cash-free, normalised working capital basis,
subject to customary post-completion adjustments (the "Acquisition").

Note (1) calculated using an GBP:AUD exchange rate of 1.93

The Acquisition consideration will be funded through Animalcare's existing
cash resources, committed debt facilities and an equity placing. The equity
placing is being conducted through an accelerated bookbuild process detailed
in a separate announcement and which will be launched immediately following
release of this announcement.

Acquisition Highlights

·      Conditional acquisition of Randlab, a privately-owned,
Australian-based equine veterinary business with an extensive portfolio of
equine brands

·      Track record of new product launches - 14 products in the last 4
years with 95% of sales generated by its own brands

·      Acquisition multiple of 10.9x adjusted EBITDA (year ended 30 June
2024)

·      Represents a transformational acquisition for Animalcare and a
significant step towards delivering the Group's long-term growth strategy

·      Acquisition expected to be materially earnings accretive - at
least 20% in FY25

·      Proforma LTM leverage expected to be approximately 1.0x on
closing with material headroom for future investment

·      Completion of Acquisition expected in early January 2025

 Acquisition Rationale

Strong financial profile

·      Randlab Pty Ltd generated revenue of A$22.9 million in FY24 and a
3 year CAGR of 13%

·      A highly profitable business with EBITDA of A$11.0 million and an
EBITDA margin of 48% in FY24, expected to deliver significant earnings
accretion in 2025

·      Cash generative business with free cash conversion of 71% and low
capital intensity

Attractive market

·      Represents a significant opportunity for Animalcare to build a
leading franchise in equine - a global market forecast to grow at 8.3% CAGR(2)

·      Historically underinvested sector where Animalcare will be
positioned as a 'partner of choice'

Note (2) Equine Healthcare Market Size and trends 2024 - 2030, Grandview
research

Extensive product portfolio

·      Extensive range of core equine generic pharmaceuticals and some
over-the-counter products

·      58 brands split into 10 categories of products, the largest two
being Gastric Ulcer and Joint which together account for 61% of total revenue

·      47 of the 58 brands are registered veterinary prescription
medicines and owned by Randlab

Equine expertise

·      100% focused on equine with strong brand loyalty and customer
relationships amongst the equine vet community

·      Highly experienced and established technical and commercial team
with specialist equine knowledge

Platform for growth

·      Significantly strengthens Animalcare's presence in the attractive
equine veterinary market which will represent in excess of 20% of group sales
on a pro forma basis (to 30 June 2024)

·      Provides the opportunity to maximise the potential of
Animalcare's current equine developments (e.g. VHH antibody programme) and
enhances future equine partnering opportunities alongside other commercial and
new product development synergies

·      Enhances and diversifies the Group's proposition with a
complementary portfolio of products with potential to be developed in Europe
over time

·      Expands the Group's geographical footprint in the important
Australian and New Zealand equine markets, providing the infrastructure to
accelerate growth across all segments of the Animalcare business in these
markets

Stifel Nicolaus Europe Limited ("Stifel") is acting as Sole and Exclusive
M&A Adviser in connection with the Acquisition and Sole Bookrunner in
connection with the Placing.

Details of the Acquisition

Principal terms of the Acquisition and Completion timing

On 3 December 2024, Animalcare Australia Pty Ltd entered into the Acquisition
Agreement pursuant to which it agreed (subject to condition) to acquire the
entire share capital of Randlab Australia Pty Ltd, Randlab Pty Ltd and
Randlab Middle East Veterinary Medicine Trading Single Owner L.L.C (together
"Randlab").

Pursuant to the terms of the Acquisition Agreement, the purchaser will pay to
the Seller, an enterprise value of A$120.0 million (approximately £62.2
million¹) on a debt-free, cash-free, normalised working capital
basis. Consideration is based on an acquisition multiple of 10.9x adjusted
EBITDA (based on adjusted EBITDA for the year ended 30 June 2024 of A$11.0
million).

Transaction structure is split exchange and completion with completion being
conditional on the satisfaction (or waiver by Animalcare) of the following key
condition precedent:

·    No material adverse change for the Target Group occurring between 30
June 2024 and 30 November 2024, being any change that has the effect of
diminishing the gross sales of the Target Group by at least 10%.

Completion is expected to take place in early January 2025 (subject to the
satisfaction or waiver of the condition precedent).

Financing of the Acquisition

The Company intends to use the net proceeds of the Placing to finance a
portion of the consideration payable under the Acquisition Agreement, and
payment of the associated professional advisory fees of the Fundraise and
Acquisition. All other payments due under the Acquisition Agreement are
expected to be funded from the Group's existing cash resources and committed
debt facility. In the unlikely event the Acquisition does not complete, the
Company may, at its option, invest the net proceeds of the Fundraise in other
acquisition opportunities that fulfil its strategic objectives and for general
corporate purposes.

Principal terms of the Facilities

On or before 29 November 2024, the Company received written confirmation from
banking partners to secure €10 million acquisition financing to finance a
portion of the consideration payable under the Acquisition Agreement, in
addition to the Company's existing committed revolving credit facility (RCF)
of €44.0 million. The acquisition financing is subject to the same covenant
requirements as the existing RCF agreement, details of which are provided
below.

The facilities remain subject to the following covenants which are in
operation at all times:

·    Net debt to underlying EBITDA ratio of 3.5 times;

·    Underlying EBITDA to interest ratio of minimum 4 times; and

·    Solvency (total assets less goodwill/total equity less goodwill)
greater than 25%.

 

Jenny Winter, Chief Executive of Animalcare Group plc, said: "We are delighted
to have reached an agreement to acquire Randlab subject to completion of the
transaction. This is a highly attractive opportunity to acquire a
market-leading equine asset in Australia that is expected to deliver
significant earnings accretion in 2025.

"This is a transformational deal that provides an excellent fit with our
growth strategy and is complementary to our product portfolio. Over the last
20 years the Randlab team has built a sustainable, profitable and cash
generative business with an impressive track record in a market that places
great importance on knowledge and expertise of equine health and wellbeing.
Not only will this acquisition significantly elevate the Group's offering in a
growing equine market, it will also open wider opportunities in a commercially
and regulatorily aligned business environment. We are keen to start working
with our Randlab colleagues as soon as possible."

Angelo Vasili, CEO/Managing Director of Randlab, said: "After 20 years
building Randlab, it is time for me to take a step back. I am deeply grateful
to all who have participated in making it what it is today. It was important
for me to find someone who was equally passionate to serve our equine
veterinarian customers and through them, their clients. In Animalcare we have
found that right fit, and I am sure they will continue to help our local teams
in Australia, New Zealand and UAE deliver the unique Randlab offering.

"Finally, I want to thank the exceptional team that is Randlab today. Together
they have made a real difference in our goal to provide equine veterinarians
wherever they practice with a comprehensive range of prescription products for
their everyday practice and to be the people closest to the equine vets."

 

Full year outlook

The Company maintains the outlook for the full year as stated in its interim
results announced on 24 September 2024.

 

 For further enquiries, please contact:

 Animalcare Group Plc                                                          +44 (0)1904 487 687
 Jenny Winter, Chief Executive Officer
 Chris Brewster, Chief Financial Officer

 Media/investor relations                                                      communications@animalcaregroup.com (mailto:communications@animalcaregroup.com)

 Stifel Nicolaus Europe Limited                                                +44 (0) 20 7710 7600

 (Sole and Exclusive M&A Adviser, Sole Bookrunner and Nominated Adviser)
 Ben Maddison

 Charles Hoare

 Nicholas Harland

 Francis North

 Panmure Liberum                                                               +44 (0)20 7886 2500

 (Joint Broker)

 Corporate Finance

 Freddy Crossley/Emma Earl

 Corporate Broking

 Rupert Dearden

 

About Animalcare

Animalcare Group plc is a UK AIM-listed international veterinary sales and
marketing organisation. Prior to the Transaction, Animalcare operated in seven
countries and exports to approximately 40 countries in Europe and worldwide.
The Group is focused on bringing new and innovative products to market through
its own development pipeline, partnerships and via acquisition.

About Randlab

Established in 2004, Randlab is a privately-owned, Australian-based equine
veterinary business (primarily prescription with some OTC products). The
Randlab product portfolio includes a wide range of equine pharmaceuticals
covering key indications including gastro-intestinal, joint, reproduction,
antibiotics, respiratory, parasiticides, sedatives & anaesthetics.

The main trading entity, Randlab Pty Ltd, is located in Sydney, Australia and
generates approximately 85% of total sales including export. Other revenues
(A$3.6 million) are largely derived from its subsidiary in Auckland, New
Zealand, with a small presence in United Arab Emirates ("UAE").

In the financial year to 30 June 2024 Randlab Pty Ltd delivered revenues of
A$22.9 million with adjusted EBITDA increasing to A$11.0 million. Total
aggregated revenue and adjusted EBITDA for the Randlab group was $26.5 million
and $10.9 million, respectively.

Summary financial information of Randlab Pty Ltd

 A$'m                    2021(3)  2022(3)  2023(3)  2024(4,5)
 Revenue                 15.9     20.7     22.1     22.9
 Growth %                4.6%     30.2%    6.8%     3.6%
 Gross profit            11.8     15.6     16.5     17.8
 Gross margin %          74.0%    75.3%    74.9%    77.9%
 Overheads               (5.1)    (5.8)    (5.7)    (6.8)
 Adjusted EBITDA (6)     6.7      9.8      10.8     11.0
 Adjusted EBITDA margin  42.1%    47.3%    48.9%    48.3%
 Change in NWC           N/A      N/A      (3.2)    (0.2)
 Cash taxes              N/A      N/A      (2.8)    (2.8)
 Other/non-cash items    N/A      N/A      0.2      -
 Capex                   N/A      N/A      (0.6)    (0.2)
 FCF before financing    N/A      N/A      4.4      7.8
 FCF conversion %        N/A      N/A      40.2%    71.0%
 A$'m                    2021(2)  2022(2)  2023(2)  2024(3,4)
 Revenue                 15.9     20.7     22.1     22.9
 Growth %                4.6%     30.2%    6.8%     3.6%
 Gross profit            11.8     15.6     16.5     17.8
 Gross margin %          74.0%    75.3%    74.9%    77.9%
 Overheads               (5.1)    (5.8)    (5.7)    (6.8)
 Adjusted EBITDA (6)     6.7      9.8      10.8     11.0
 Adjusted EBITDA margin  42.1%    47.3%    48.9%    48.3%
 Change in NWC           N/A      N/A      (3.2)    (0.2)
 Cash taxes              N/A      N/A      (2.8)    (2.8)
 Other/non-cash items    N/A      N/A      0.2      -
 Capex                   N/A      N/A      (0.6)    (0.2)
 FCF before financing    N/A      N/A      4.4      7.8
 FCF conversion %        N/A      N/A      40.2%    71.0%

 

Randlab has A$28.1 million gross assets as at 30 June 2024.

Notes:

3.     2021-2023 financial years are unaudited

4.     2024 revenue, gross profit, change in NWC and capex are audited,
remaining figures are unaudited due to adjusting items

5.     Aggregated group (inclusive of New Zealand and UAE operations)
revenues, gross margin % and adjusted EBITDA are $26.5m, 69.2% and $10.9m
respectively

6.     Earnings before interest, tax, depreciation, amortisation excluding
adjusting items

 

To facilitate post-transaction integration and maintain continuity of local
leadership, Bruce Bell, a former Elanco and Virbac Country/General Manager was
appointed in 2020 as Assistant General Manager to succeed Angelo Vasili
(current CEO and founder of Randlab). Bruce will transition to General Manager
ANZ on completion and report to Jenny Winter, CEO. Separately, Brad Saunders
will join Animalcare/Randlab as Finance & Operations Director ANZ,
reporting to Chris Brewster, CFO to lead on finance and supply aspects of the
business. Randlab currently employs approximately 25 people. This total is
expected to remain largely unchanged post completion.

 

Cautionary statements

Certain statements in this announcement are forward-looking statements, which
include all statements other than statements of historical fact and which are
based on the Company's expectations, intentions and projections regarding the
Company's future financial condition, performance, anticipated events,
strategic initiatives, or trends, the future performance of the Company
resulting from the Acquisition and other matters that are not historical
facts. These forward-looking statements, which may use words such as "aim",
"anticipate", "believe", "could", "intend", "estimate", "expect" (or the
negatives thereof) and words of similar meaning. These forward-looking
statements are not guarantees of future performance and involve known and
unknown risks, assumptions, uncertainties and other factors that could cause
the actual results of operations, financial condition, performance, liquidity
and dividend policy and the development of the industries in which
Animalcare's and Randlab's businesses operate to differ materially from those
expressed or implied by the forward-looking statements. Undue reliance should
not be placed on such forward-looking statements. In particular, but without
prejudice to the generality of the above, no representation or warranty is
given, and no responsibility or liability is accepted, either as to the
achievement or reasonableness of any future projections, forecasts, estimates
or statements as to any prospects or future returns contained or referred to
in this announcement or in relation to the basis or assumptions underlying
such projections or forecasts. Forward-looking statements speak only as of the
date of such statements. Except as required by applicable law, Animalcare and
Stifel and their respective affiliates undertake no obligation to update or
revise publicly any forward-looking statements, whether as a result of new
information, future events or otherwise. Results can be positively or
negatively affected by market conditions beyond the control of the Company or
any other person. No statement in this announcement is intended to be a profit
forecast. Stifel which is authorised and regulated in the United Kingdom by
the Financial Conduct Authority, are acting exclusively for Animalcare and for
no one else in connection with the Acquisition and will not regard any other
person (whether or not a recipient of this announcement) as a client in
relation to the Acquisition or any other matter referred to in this
announcement, and will not be responsible to anyone other than the Company for
providing the protections afforded to their respective clients nor for
providing advice in relation to the Acquisition, or any other matter referred
to in this announcement. The responsibilities of Stifel as Animalcare's
nominated adviser under the AIM Rules for Companies and the AIM Rules for
Nominated Advisers are owed solely to the London Stock Exchange and are not
owed to the Company or any director, shareholder or any other person.

 

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