Dive Brief:
- Patterson Companies, a distributor of dental and animal health products, plans to sell to an investment firm for about $4.1 billion.
- Healthcare investment firm Patient Square Capital will take Patterson private for about $31.35 in cash per share, the companies announced on Wednesday. Shares of Patterson closed at $23.11 on Tuesday. Its stock price was up more than 34% Wednesday morning.
- Patterson announced a review of strategic alternatives last week after its profit decreased by one-third in its fiscal second quarter, according to the Minnesota Star Tribune. Evercore ISI analysts wrote in a research note that the timing of the deal “came as a bit of a surprise,” but they see the purchase as a positive given Patterson’s recent financial results.
Dive Insight:
St. Paul, Minnesota-based Patterson sells dental supplies and instruments and veterinary equipment, including imaging machines. The company reported $6.57 billion in sales in its fiscal year ending in April, with dental making up about 38% of the total.
In the company’s most recent quarterly earnings call, executives called out two challenges: a revenue and profit shortfall in its dental segment from the Change Healthcare cyberattack earlier this year and moderation in veterinary clinic traffic.
In that quarter, the company reported net income of $26.8 million, down roughly a third from the year-ago period.
Analysts view Patient Square Capital’s proposal as a good option for Patterson. The offer is a 49% premium to Patterson’s 30-day volume-weighted average price per share before the company announced it was pursuing strategic alternatives. The agreement also includes a 40-day “go shop” period that would allow for Patterson to solicit other proposals.
“We believe this is a solid takeout multiple for Patterson and would be surprised to see higher bidders come forward in the 40-day shopping period,” William Blair analyst Brandon Vazquez wrote in a research note.
Evercore analysts see the potential for other buyers as “somewhat muted” given that other companies may face antitrust concerns or have different strategic plans. They don’t foresee any regulatory hurdles to the current deal.
The analysts added that Patient Square has a history of turning around “troubled assets,” citing the investor’s purchase of biopharma solutions company Syneos Health last year.
The acquisition will be financed with a mixture of debt and equity financing from Patient Square Equity Partners. Patterson’s board of directors approved the deal.
The transaction is expected to close in Patterson’s fiscal fourth quarter, which ends in April 2025, and is subject to shareholder approval, regulatory approvals and other customary closing conditions.