Patterson Closes NVS Deal

Patterson (PDCO) completed the previously announced acquisition of the National Veterinary Services Limited (NVS) for $135 million. NVS is the largest veterinary distributor located in the U.K. It was a fully owned subsidiary of Dechra Pharmaceuticals PLC and will now operate as a stand-alone subsidiary of Patterson.

The acquisition is expected to expand the geographic reach of PDCO’s Veterinary business. We believe that NVS’ various offerings, including reference laboratory products, should enrich Patterson’s product portfolio. Upon the completion of one year after the closure of the deal, it is projected to boost PDCO’s earnings by 4–5 cents (including one-time expenses).

Patterson’s Veterinary Supply unit is seen as a key long-term growth driver. However, the business is posting disappointing results, despite tailwinds in the underlying market. This is due to a change in distribution agreement related to nutritional offerings in 2012.

We believe that the recent tailwind in the North American veterinary market provides ample opportunity for the company to grow. Patterson is also investing in technologies to boost the profitability of its veterinary business. Apart from the macroeconomic factors, the company needs to improve internal execution to avoid loss of market share in the veterinary business to competitors.

In early 2013, PDCO’s Veterinary business acquired Calif.-based Universal Vaporizer Support, a supplier of cleaning and calibration services for anesthetic vaporizers used in veterinary drugs.

Recently, on Jul 31, Patterson Dental, the company’s core business, acquired Mercer Mastery, a unit of Mercer Advisors. Patterson Dental acquired the entity to leverage its software products portfolio with Mercer’s flagship product, the OnTrack dental practice performance software system.

PDCO has a Zacks Rank #2 (Buy). The company is slated to report its first-quarter fiscal 2014 results on Thursday, Aug 22. Medical stocks such as MWI Veterinary Supply (MWIV), The Cooper Companies (COO) and Align Technology (ALGN) are worth a look. All these stocks carry a Zacks Rank #2 (Buy).