Zoetis Inc. and Abaxis, Inc. announced May 16 a definitive merger agreement pursuant to which Zoetis will acquire Abaxis, a leader in the development, manufacture and marketing of diagnostic instruments for veterinary point-of-care services for US $83 per share in cash, or approximately $2.0 billion in aggregate. The acquisition is expected to enhance Zoetis’ presence in veterinary diagnostics, a category of the animal health industry with approximately 10% compound annual growth over the last three years.
Abaxis, founded in 1989 and headquartered in Union City, Calif., is a leading provider of diagnostic instruments and consumable discs, kits and cartridges to the animal health industry. Abaxis reported revenue of $244.7 million for its fiscal year ended March 31, 2018, an increase of 8% compared to its 2017 fiscal year. Its VetScan portfolio of benchtop and handheld diagnostic instruments and consumables serves a large customer base of veterinary practices in North America and is poised for expansion in international markets.
Acquisition gives Zoetis a new platform for growth
“This acquisition brings Zoetis a company that has a proven, competitive diagnostic platform for growth that we can help to accelerate in the U.S. and worldwide with our global scale and direct customer relationships in approximately 45 countries,” said Juan Ramón Alaix, Chief Executive Officer of Zoetis. “Together we can bring more veterinarian customers a broader range of products that fit into our comprehensive solutions and innovations, from prediction and early detection of disease in animals to prevention and treatment. We are very excited by the passion for customers that Abaxis and Zoetis colleagues share.”
“We see a prime opportunity to grow our business as part of Zoetis,” said Clint Severson, Chairman and Chief Executive Officer of Abaxis. “We recently invested in expanding operations in Europe, Latin America, and the Asia Pacific Region, with 20% of revenue in fiscal year 2018 coming from our international operations. Zoetis has the global presence and direct veterinary customer relationships to deliver greater value to more customers around the world and accelerate the growth of our international operations. This acquisition gives recognition to our record of success and the highly skilled, dedicated employees of Abaxis who helped build our company over the course of nearly three decades.”
Abaxis’ veterinary diagnostics portfolio
The Abaxis VetScan portfolio includes chemistry and hematology diagnostic instruments and companion discs, kits and cartridges, which are consumables that create a recurring revenue stream. Abaxis recently launched the VetScan FLEX4 Rapid Test to detect Heartworm, Lyme, Ehrlichia and Anaplasma diseases in dogs, as well as its VetScan Canine Pancreatic Lipase Rapid Test, its UA urine chemistry instrument and the Urine Sediment Analyzer.
Abaxis has a near-term pipeline of products, including an update to the capabilities of its VetScan FUSE, a bi-directional connectivity system that provides integration between Abaxis point-of-care instruments and veterinary practice management systems worldwide.
Abaxis derived 83% ($201.9 million) of its annual revenue in fiscal year 2018 from diagnostic products and services for the veterinary market. Approximately 16% ($38.6 million) of the company’s revenues were generated by sales of its Piccolo portfolio of analyzers and tests for the human medical market. Sales of consumables accounted for approximately 78% ($191.3 million) of Abaxis’ fiscal 2018 revenue. Abaxis has more than 580 employees worldwide.
Veterinary diagnostics: A growing and vital category of animal health
The veterinary diagnostics category, which includes reference laboratory and point-of-care diagnostics, is estimated to be more than $3 billion, with compound annual growth of 10% over the past three years. Zoetis expects the diagnostics category to continue to grow faster than the animal health industry, with growth in the mid to high single digits, driven by international adoption of point-of-care diagnostic instruments due to rising medicalization rates, increasing standard of veterinary care and the convenience of in-clinic testing.
The transaction is subject to customary closing conditions, including regulatory approvals and the approval of Abaxis shareholders. Zoetis expects to complete the acquisition before the end of 2018, and it intends to fund the purchase through a combination of existing cash and new debt.
Zoetis anticipates the transaction will have an impact on 2018 reported earnings related to customary closing activities; however, on an adjusted basis, the company does not expect a material impact. Zoetis will provide additional updates as the transaction progresses towards closing. Zoetis expects the transaction to be accretive to the company’s earnings in 2019.
Wachtell, Lipton, Rosen & Katz is acting as legal advisor to Zoetis, and Guggenheim Securities and Barclays are acting as financial advisors. Cooley LLP is acting as legal advisor to Abaxis, and Piper Jaffray is acting as its exclusive financial advisor.