National Veterinary Care Ltd (ASX: NVL) has unveiled the acquisition that caused it to go into a trading halt.
It is acquiring the Pet Doctors Group in New Zealand, which will add 23 clinics and two training centres to the company's network for an initial $22.7 million and a deferred consideration of $4.3 million if earnings targets are reached.
According to National Vet Care, the acquisition will make the company the market leader in New Zealand in the companion animal sector with a total of 33 clinics. The larger scale will lead to better supply deals and other procurement benefits, boosting the managed services division which launched in New Zealand during August.
Based on numbers provided by National Vet Care, the acquisition is on a multiple of 5.3x clinic EBITDA inclusive of synergies. It's expected to add annual revenue of NZ$31.2 million and annual earnings before interest and tax (EBIT) of NZ$4.5 million.
It's expected to be earnings per share (EPS) accretive in mid-single digits in FY19 on a pro forma basis, including the benefits of synergies. The pro forma net debt/pro forma EBITDA ratio will be 2x.
The acquisition is being funded by existing cash, debt and proceeds from an institutional placement raising around $18 million at $2.25 per share. Apparently the placement was oversubscribed.
National Vet Care's CEO and Managing Director Tomas Steenackers said "The Pet Doctors acquisition will be our largest acquisition since listing onto the ASX in 2015 and is an excellent strategic fit with NVL's exiting business, in particular expanding its New Zealand footprint.
"We plan to deploy a number of NVL systems, including our wellness program, across all clinics within 120 days from settlement."
After this acquisition has settled, National Vet Care will have 92 clinics.
Is it a buy?
This seems like a solid acquisition by National Vet Care and provides scale quickly in New Zealand. National Vet Care is one of my favoured small caps and I think this could re-invigorate the share price.
Management were already predicting that revenue would grow by 25% in FY19 with a stable profit margin. The new guidance is that management expect revenue in FY19 of $115 million, a 40% increase.
However, there will be a lower EBITDA margin in the short-term as management bring up Pet Doctor's EBITDA margin. EBITDA is expected to come in at $16.7 million to $17.3 million, with a margin of 14.5% to 15% in FY19.
I'd be happy to buy another parcel after today's news.
