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Covetrus to go private in $4 billion sale

Company formed from 2019 merger of Henry Schein Animal Health, Vets First Choice

May 27, 2022 (published)
Screenshot from Nasdaq Facebook video
Covetrus executives and directors celebrated the company being listed on the Nasdaq Stock Market on Feb. 8, 2019. A little more than three years later and hovering at around half its opening share price, Covetrus has agreed to be taken private by a pair of private equity companies.

Covetrus has agreed to be taken private by a pair of investment companies in a move that would end the veterinary services giant's brief, lackluster run on the Nasdaq stock exchange.

Covetrus is an international company providing product distribution, practice management software and online pharmacy services for veterinarians. The Portland, Maine-based company was created from a merger of Henry Schein Animal Health and Vets First Choice in early 2019.

Private equity companies Clayton, Dubilier & Rice (CD&R) and TPG Capital have offered $21 for each Covetrus share not already owned by CD&R, which has an existing 24% stake in Covetrus.

The takeover offer implies an "enterprise value" for the entire company of $4 billion, Covetrus said. In financial parlance, an enterprise value includes the value of a company's debt as well as its equity. The offer values Covetrus' equity at about $2.93 billion.

The per-share bid announced Wednesday is $1.34 above Covetrus' closing price of $19.66 on Tuesday, representing a relatively modest premium of 6.8%. However, the shares jumped from around $18 last Friday after Covetrus first disclosed that it had received an offer.

The bid still is a far cry from the $41.01 closing price of Covetrus stock when it listed on Feb. 8, 2019 — its all-time high.

In brief

"This transaction is an important milestone for our company, shareholders, employees, customers and partners," Benjamin Wolin, Covetrus' president and chief executive officer and a member of its board of directors, said in the announcement. "Not only does this deal provide compelling value for our existing shareholders, it allows Covetrus to continue its mission to drive positive outcomes — both business and healthcare — for veterinarians across the globe."

According to the announcement, Covetrus plans to keep its current management team in place, continue offering the same products and services, and maintain its headquarters in Portland.

The transaction, which has the backing of Covetrus' board, is expected to be completed in the second half of 2022, provided it receives shareholder support and customary regulatory approvals.

CD&R and TPG declined to comment for this story. Covetrus did not respond to questions from the VIN News Service.

Three-plus years as a public company

Covetrus was formed from the union of a well-established player in the veterinary sphere and a brash newcomer. Henry Schein Animal Health was one of the country's largest distributors of veterinary products and a major purveyor of practice management software. Vets First Choice was an online veterinary pharmacy, prescription management and data analytics business started in 2010. As Covetrus, the new company counted 90% of U.S. veterinary practices as consumers in some capacity (with customers in Canada, Europe, Australia, New Zealand, China and Brazil, as well), according to information provided by Covetrus. Together, Schein and Vets First Choice had $4 billion in sales in 2018.

At its inception, Covetrus was led by Benjamin Shaw, who had been CEO of Vets First Choice. His father, David Shaw, founder of Idexx Laboratories, one of the two largest veterinary diagnostic laboratories in the country, was chair of Covetrus' board of directors.

In an industry facing steady consolidation, some veterinarians expressed concern that the merger further reduced the number of providers of products and services.

Covetrus was rattled in its first year by earnings that disappointed Wall Street and a tanking stock value. A pair of pension funds filed a class action, accusing the company of making false and misleading statements to inflate and maintain the share price artificially. Top executives and board members departed, including both Shaws.

The case is nearing a $35 million settlement, judging from a motion plaintiffs made on May 9.

The company registered some wins in its first three years. NVA, one of the largest hospital chains in North America, announced in October 2019 that Covetrus would be its preferred prescription management partner. In addition, Covetrus rolled out new practice management software and other technology for the U.S. market and beyond.

In 2020, Covetrus acquired majority ownership in Veterinary Study Groups, a membership organization comprised of owners of more than 1,800 independent practices. In a surprise move this year, the company installed as president of VSG Matt Salois, former chief economist of the American Veterinary Medical Association. In 2021, Covetrus acquired Veterinary Care Plans, known as VCP, which administers pet wellness plans on behalf of 1,000 practices.

Who are the proposed owners?

CD&R and TPG Capital are not newcomers to the veterinary sphere.

CD&R is a private investment firm founded in 1978 and headquartered in New York. It first invested in Vets First Choice as part of a more than $40-million package in 2015, and CD&R partner Ravi Sachdev joined as a board member at the time. The firm's stake increased over the years and after the merger. Sachdev remains on the Covetrus board. 

According to the announcement, CD&R has managed investments of more than $40 billion in over 100 companies with an aggregate transaction value of more than $175 billion. Its website portfolio page features mostly health care, industrial, technology and consumer brands.

TPG, based in San Francisco and founded in 1992, manages $120 billion in assets. It has invested big in the pet and animal health sectors before. In the early 2000s, TPG paired up with another private equity company to take Petco private, then public, then private again. The TPG-led investing group eventually sold the giant pet products retailer to private investors in 2016. (Petco went public again in 2021.)

In 2019, TPG acquired Greencross Vets, the second-biggest corporate consolidator in Australia, with about 150 practices plus a pet-products warehouse business. TPG is selling a 45% stake in Greencross to two pension funds, one Australian and one Canadian. 

Disclosure: The VIN News Service is part of the Veterinary Information Network, an online member community for the profession. VIN and its entities offer services that overlap with what Covetrus offers, such as client portals, email and text reminders, continuing education, mentoring and marketing support. VIN News operates separately from other VIN services.


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