Henry Schein Completes AUV Acquisition

Last week, Henry Schein (HSIC - Snapshot Report) completed the acquisition of AUV Veterinary Services, the veterinary products distribution arm of the Netherlands-based AUV Group, for approximately $40 million.

Products distributed by AUV Veterinary Services include pharmaceuticals, pet foods, small equipment and disposables.This transaction would strengthen Henry Schein’s foothold in the European market and would fetch more than $2 billion in sales from global animal health.

AUV Veterinary Services, with sales of more than $270.4 million in fiscal 2011, currently distributes its products to approximately 2,000 large and small animal veterinarians in the Netherlands and Belgium.

The deal would also bring in consulting business serving veterinary practices, known as AUV Advies and AUV Academie, an education program for veterinarians.The deal is anticipated to be marginally dilutive to Henry Schein’s 2012 bottom-line and accretive thenceforth.

With AUV Veterinary Services carrying approximately 1% operating margin, the acquisition would negatively impact Henry Schein’s operating margin in the second half of the year by approximately 10 basis points. However, the company is confident that the operating margin of the acquired business will improve gradually with better efficiency.

With its solid cash balance ($101.8 million at the end of first quarter 2012) Henry Schein is focusing on expansion through acquisitions. Last year, significant acquisitions made by the company include Provet Holdings, the largest veterinary products distributor in Australia and California-based Alpha Scientific, a surgical, pharmaceutical and laboratory products distributor.

Henry Schein reported a strong first quarter with both revenues and earnings sailing past the Zacks Consensus Estimates. The company’s global animal health segment witnessed a 15.3% surge in revenues to $525.6 million with increasing market share owing to increased product offerings and strong relationships with its customers.

The company continues to experience strong top-line growth and has established its footprint in both domestic and international markets in dental, veterinary and medical supply distribution.We are also encouraged by the company’s focus on improving its cost structure to drive profitability. The stock retains a short-term Zacks #2 Rank (Buy).

Henry Schein’s performance should improve further with the gradual recovery in economic outlook. However, the company faces stiff competition from major players like McKesson Corporation (MCK - Analyst Report) and Patterson Companies Inc. (PDCO - Analyst Report). Over the long term we have a Neutral recommendation on the stock.