TPG and CD&R make take-private offer for pet care giant

Investment fund managers TPG and Clayton, Dubilier & Rice are offering to take private money-losing pet-care company Covetrus at $21 a share, regulatory filings show, implying an equity value of about $2.93bn.

The offer represents a roughly 17% premium to the $18.02 closing price of Covetrus shares Thursday on the Nasdaq Stock Market. The shares climbed 9.4% Friday to close at $19.71 each.

Clayton Dubilier already owns nearly a quarter of the Portland, Maine-based provider of animal-health technology and services to veterinarians. The New York firm has backed the business since its creation in 2019 through the combination of Henry Schein Animal Health and Vets First Choice. The firm initially backed Vets First in 2015.

The deal comes as Americans have ratcheted up spending on pets of all sorts, according to the not-for-profit American Pet Products Association. The group in Stamford, Conn., says on its website that U.S. household pet spending climbed 19% last year to $123.6bn from $103.6bn in 2020 and $90.5bn in 2018. Veterinary care and products represented $34.3bn of last year’s spending.

Private equity firms have been investing in the animal-health sector for years. Some firms expressed an interest in Bayer AG’s animal-health business before it agreed to sell the unit to an American rival, Elanco Animal Health, for $7.6bn in 2019, The Wall Street Journal reported at the time.

Clayton Dubilier added to its investments in the market through its 2020 acquisition of Radio Systems Corp. in Knoxville, Tenn. The companion pet health and safety company makes radio-frequency systems that fence in dogs and provide training aids, among other products, and has since acquired a number of invisible-fence installers.

Clayton Dubilier also raised its Covetrus stake in 2020 through a $250m purchase of preferred equity and held about 24% of the company’s shares as of last month, securities filings show. Two Clayton Dubilier partners, Sandra Peterson, a former Bayer executive, and Ravi Sachdev, sit on the Covetrus board.

Covetrus acknowledged receiving the buyout offer in a filing Friday but didn’t say whether it supports the deal.

A Clayton Dubilier spokesman didn’t respond to a request for comment. A TPG spokeswoman declined to comment.

On May 5, Covetrus reported that its first-quarter loss narrowed to $2m, or 2 cents a share, on a 4.2% rise in revenue to about $1.15bn, compared with a $16m loss, or 11 cents a share, on $1.10bn in sales in the year-earlier period. The company said its adjusted pretax earnings for the just-ended quarter rose about 10.5% to $63m from $57m a year earlier.

The company finished the first quarter with about $1.05bn in outstanding term loan debt at the end of March, along with $117m in cash and cash equivalents.

Clayton Dubilier’s 10th buyout fund, Clayton Dubilier & Rice Fund X LP, had produced a return multiple of 2.1 times invested capital by September of last year after closing on $10bn in 2017, according to a report from the California Public Employees’ Retirement System. Calpers committed $150m to that fund and pledged $500m to the firm’s 11th flagship buyout vehicle, which closed on about $16bn in February of last year.

The firm is seeking $20bn for its next flagship buyout fund, WSJ Pro Private Equity has reported. At the end of last December, the firm said it managed about $57.19bn of assets.

From WSJ

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