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Animalcare plans European expansion via mammoth takeover

The veterinary pharmaceuticals group is raising £30m to fund the reverse takeover of Ecuphar
June 23, 2017

Animalcare (ANCR) is bulking up. The Aim-traded veterinary pharmaceuticals group has announced its intention to acquire Ecuphar, an animal health company based in Belgium. In order to fund this reverse takeover, the group is proposing to raise roughly £30m via the placing of new shares. Animalcare will also spend £4m in cash and take on Ecuphar’s debt which, on 31 May stood at £28.8m.

IC TIP: Hold at 393p

On Friday, Animalcare’s shares were suspended pending the outcome of the fundraising, making it hard to gauge the market’s response to the announcement at present. But the scale of this acquisition has raised a few eyebrows among certain fund managers. Animalcare has built a solid reputation via steady organic growth and a debt-free balance sheet. Now some have questioned whether the group has bitten off more than it can chew.

But the group’s current chief executive Iain Meneer remains confident that the reverse takeover is the best strategy to grow quickly in the rapidly expanding animal healthcare arena. Ecuphar is expected to add new 38 markets to Animalcare’s geographic reach along with a strong pipeline of new products in the companion animal, farm and equine markets. In the year to December 2016 the Belgian group reported revenues of £68.4m and adjusted cash profits of £8.9m – a considerable boost to the £14.7m revenues and £3.2m of operating profits reported by Animalcare in its most recent full year results. As both companies are cash generative, Mr Meneer is also confident the combined group will be able to pay down Euphar’s debt within three years.

Ecuphar was founded in 2002 by Chris Cardon who is to remain chief executive of the new group. Mr Meneer is to become group chief operating officer and will stay on the board. While this also adds a layer of risk for shareholders who have been impressed with the way Animalcare has been run in its 10 years on Aim, Mr Meneer thinks that Mr Cardon has the right entrepreneurial skills to lead the enlarged business.

Due to the scale of this reverse takeover, Animalcare’s current investors will have the opportunity to vote on the deal. Although Mr Meneer calls himself, “quite a cautious guy”, he remains positive that the takeover will be voted through thanks to the strong institutional support for the fundraising round, which closes on 23 June.

That said, Animalcare’s current shareholders will be diluted, not only by the fundraising round but also by the nature of the takeover. Animalcare will own 37 per cent of the enlarged group and Ecuphar the remaining 63 per cent. This gives the target’s controlling shareholders a strong position on the shareholder register of the enlarged group: Ecuphar Invest (an organisation owned by Mr Cardon), investment group Alychlo and Jaak Cardon (Mr Cardon’s son) will own just under half of the newly-combined company.