Dividing a veterinary portfolio species by species

The desk completed the sale of a Latin American veterinary producer in April. The company held 63 product registrations across nine countries and five species groups, one manufacturing site with two approved processes, and a direct sales force of 74 people. The owners expected a single buyer and a single price. The market does not work that way. Companion-animal products are bought by groups that sell through clinics and retail. Production-animal products are bought by groups that sell to feedlots, integrators and public programmes. The two sets of buyers value the same registrations differently by a wide margin.

We ran the process on two tracks with a shared data room and a common set of representations. The companion-animal portfolio of 21 registrations drew six bidders and cleared at 14.1 times operating earnings. The production-animal portfolio of 42 registrations drew four bidders and cleared at 8.6 times. A single-buyer bid received before the split priced the whole company at 9.4 times. The two-track outcome was 14 per cent above that bid in aggregate, and it took five months longer to complete. Owners should be told both numbers before they choose.

The plant is what makes a split hard. Both portfolios were made on one site under approvals that name processes rather than products. The structure that resolved it gave the site to the production-animal buyer, which needed the volume, with a five-year tolling agreement in favour of the companion-animal buyer at a rate fixed for three years and indexed thereafter. The tolling agreement was negotiated between the two buyers with the seller in the room, which is unusual and necessary. A tolling rate imposed by a seller who is about to leave will be renegotiated within a year.

Registrations transfer at different speeds, and the difference is the main source of completion risk. Across the nine countries, transfer of a companion-animal registration took between three and six months. Transfer of a production-animal registration, where residue limits and withdrawal periods for food-producing species are reviewed again on a change of holder, took between eight and fourteen months. We therefore priced the two portfolios on different completion mechanics: full payment at closing for the companion-animal set, and a holdback of 12 per cent released against transfer milestones for the production-animal set.

The sales force cannot be divided the way the registrations can. Representatives who call on clinics do not call on feedlots, so the split of 74 people followed the customer rather than the product, and 11 people who covered both were offered to whichever buyer took their largest territory. Retention agreements were signed with 23 named individuals before the price was fixed. A veterinary business is a distribution business wearing a manufacturing coat, and buyers who understand that pay for the coverage.

The Charter principle on welfare in biological capital applied throughout. Both buyers accepted the welfare standards the firm applies to life-science positions, written into the sale agreement as conditions surviving completion, covering the housing and handling of animals in the trial work that supports registrations and the treatment of source material in the biological processes. One bidder declined to accept those terms and left the process at the second round. The seller received a lower number of bids and a better outcome, which is the arithmetic the firm expects when a standard travels with the capital.

Published 2023-05-16 by the Investment Banking division. Research is prepared for eligible counterparties and does not constitute advice.