Patterson Acquires IDS

Patterson Dental, the dental division of Minnesota-based distributor of dental, veterinarian and rehabilitation medical supplies, Patterson Companies ( PDCO - Analyst Report ) , recently announced the acquisition of Iowa Dental Supply, LLC (IDS) a full service distributor of dental products. The financial details of this all-cash transaction were not disclosed.

Des Moines, Iowa-based IDS caters to Midwestern dental markets such as Iowa, South Dakota, Nebraska, Illinois and Missouri. Its long-established reputed sales force comprises 11 field representatives and equipment specialists.

The acquisition of IDS should boost Patterson Dental’s foothold in the Midwestern U.S. markets and provide a competitive edge to the company. Patterson competes head-to-head with Henry Schein Inc. ( HSIC - Snapshot Report ) in the dental market.

With IDS generating annual revenues of $13 million in 2011, management at Patterson Dental expect the deal to be modestly accretive in fiscal 2013. In its first quarter fiscal 2013 results, Patterson had forecast its earnings to be in the range of $2.10–$2.16 per share for the fiscal year. The company also anticipates that the integration process will be quick and hassle-free.

The acquisition is in line with the company’s long-term strategy to grow through internal expansion and acquisitions. Earlier, in April 2012, Patterson Medical acquired Australia-based distributor of rehabilitation, physiotherapy, and mobility products, Surgical Synergies Pty Ltd. for $10 million to expand its market size in Australia and New Zealand.

One of the two largest distributors of dental offerings in North America, Patterson Dental provides a wide range of consumables, equipment and software, and value-added services to its customers. Although patient demand for dental services was tepid at the height of recession, Patterson should benefit from the gradual recovery in the dental market.

We also remain upbeat about the prospects of the dental equipment business (especially CEREC) and the distribution agreement with Sirona Dental Systems ( SIRO - Snapshot Report ) . The company’s focused promotional activities should result in higher demand for this product category moving ahead.

However, consumable sales from the dental business are expected to be a drag due to the weak economy, high unemployment rate and lack of consumer confidence. We currently have a Neutral recommendation on the stock, which carries a short-term Zacks #3 Rank (Hold rating).