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MWI Vet to Take Over Competitor

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In a concerted effort to strengthen its business in the domestic market, MWI Veterinary Supply Inc. inked a definitive agreement to acquire all the assets of U.S.-based key competitor IVESCO Holdings for $67.5 million. The company expects to complete the acquisition by the first quarter of fiscal 2014 (ending Dec 31, 2013).   

This marks another strategic acquisition for MWI Vet, which keeps a keen eye out for making accretive buyouts from time to time. We believe that consolidation efforts in the veterinary distribution business should help the company to gain market share with consequently greater pricing power against other players.

The acquisition will immediately leverage MWI Vet’s top line as the company envisages IVESCO to add roughly $400 million to revenues on an annual basis during the first year of the takeover. Additionally, MWI Vet expects the acquisition to be marginally accretive in fiscal 2014, after adjusting for acquisition-associated expenditure and integration costs.

According to the company, the acquisition-related expenditure amounts to roughly $1.2 million in the ongoing quarter (ending Sep 30, 2013). The impact of this unanticipated expenditure was not included in MWI Vet’s EPS guidance for fiscal 2013.

At the end of the third quarter of fiscal 2013, MWI Vet forecast EPS in the range of $4.89–$4.94 compared with $4.79–$4.89 earlier, with annualized growth of 15.6%−16.8% for the ongoing fiscal.

As a value-added distributor of animal health products in Springdale, Ark., INVESCO appears to be a strategic fit for MWI Vet. Presently, IVESCO’s five business platforms – mixed animal practice veterinarians, poultry integrators, swine integrators, dealers and cattle, serve more than 6,000 customers in the U.S. IVESCO distributes over 25,000 different products sourced from 500 manufacturers.

Per management, the acquisition will boost MWI Vet’s foothold in the production animal market. This is because the company will be in a position to offer an enhanced product portfolio with improved supply chain performance to its vendors and customers after the acquisition. Furthermore, the addition of IVESCO’s complementary business comes at a small premium over net tangible assets for MWI Vet.

We are optimistic that MWI Vet should gain competitive advantage on the basis of economies of scale, post-acquisition. The enhanced financial profile should boost the company’s growth profile. The news also sparked market optimism as the share price of MWIV rose about 6% (or $8.30) following the disclosure of the acquisition agreement.  

Currently, MWI Vet looks like an attractive pick as it carries a Zacks Rank #2 (Buy). Other Zacks Rank #2 stocks that warrant a look are The Cooper Companies Inc. (COO - Free Report) , Align Technology Inc. (ALGN - Free Report) and McKesson Corporation (MCK - Free Report) .

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