Zoetis is the world's largest animal health company with $5.3 bln in annual revenue. It was also a spin-off from Pfizer (PFE) in February of 2013. It is a supplier of animal health medicines for both livestock and companion animals. Additionally, ZTS sells diagnostic tests, genetic tests, and bio-devices, serving veterinarians and livestock producers. Since the spin-off several years ago, the stock has performed exceptionally well, up an impressive 167%, bolstered by consistent upside quarterly reports
As for Abaxis, the company is a manufacturer of portable blood analysis systems for both human and veterinary care. It provides consumable discs (VetScan), kits, and cartridges to the animal health industry. It also develops and markets VetScan HM5, VetScan HM2, VetScan HMII, and VetScan HMT hematology instruments, as well as VetScan VSpro which assists in the diagnosis and evaluation of bleeding disorders, toxicity, hepatic disease, and other blood disorders. It 2017, ABAX generated $245 mln in total revenue, 83% of which was from diagnostic products and services for the veterinary market.
From a strategic standpoint, the acquisition seems to be a good fit for ZTS as it will provide it with a new line of diagnostic instruments and consumables. In the press release this morning, ZTS commented that the veterinary diagnostics market has grown at a CAGR of 10% over the past three years. With ZTS' size and global scale, reaching across 100 countries, it believes it can accelerate the growth of ABAX' diagnostic platform. In fact, ZTS has recently invested in its European, Latin American, and Asia Pacific operations, which it can now use to expand this new diagnostics business.
From a financial standpoint, ZTS is paying a decent premium for the company. Analysts are currently forecasting ABAX to generate revenue and EPS of $298.1 mln and $1.72 next fiscal year. At the $2 bln price tag, this equates to ZTS paying multiples of 6.7x and 51x, respectively. On an adjusted basis, ZTS does not expect the acquisition to have a material effect on FY18 results, but, it does expect it to be accretive to earnings in 2019.
To conclude, this looks like a pretty good deal for both sides. ZTS is bolstering its product line, adding a new growth driver as it enters the veterinary diagnostics market, while ABAX is given what seems to be a generous offer, based on the aforementioned revenue and earnings multiples.