By Orlando Poraqi, Maria Lovin, Iulian Paval and Adam Butlin (Bocconi University and UCL) - Date: 13/03/2019
Overview of the deal
Acquirer: Merck & Co. (NYSE: MRK)
Target: Antelliq Group
Estimated value: $3.7bn
Announcement date: 14th December 2018
Acquirer Advisors: Barclays, Centerview Partners
Target Advisors: Goldman Sachs, Rothschild & Co.
Merck & Co. and privately held Antelliq Group announced on 14th December last year an all-cash deal under which Merck will wholly acquire Antelliq. Merck is paying about $2.37 bn to acquire 100% of outstanding shares of Antelliq. It is also assuming Antelliq’s debt of $1.3 bn which is set to be repaid shortly after deal close which is expected in Q2 2019, subject to regulatory approval. Antelliq produces 500 million animal sensors annually to provide identification, monitoring, and traceability for vets, farmers and pet owners in more than 100 countries. It is at the forefront of the movement towards combining animal intelligence and animal health industries through its extensive suite of digitally connected identification and monitoring technologies. The business was acquired by BC Partners from Electra Partners in 2013 for $1.3bn. BC Partners’ global network has been critical to Antelliq’s international expansion
Antelliq is a unique business which played a pivotal role in driving forward the convergence of the animal intelligence and animal health industries globally. We are proud of the transformation of the company that we initiated together with a fantastic leadership team over the past five years and believe that Merck is an ideal partner for Antelliq to support the next stage of growth.” - Jean-Baptiste Wautier, chairman of Antelliq
Company Details (Merck & Co.)
Merck & Co., MSD outside the US, is an American pharmaceuticals company - 7th largest globally by market cap and revenue - which operates in over 140 countries providing prescription medicines, vaccines, biological therapies and animal health product. Merck Animal Health (MAH) brought in sales of $3.9 billion in 2017.
- Founded in 1917 and headquartered in Kenilworth, NJ, US
- Chair and CEO: Kenneth C. Frazier
- Number of employees: 76,000
- Market Cap: $206bn - EV: $222.5bn
- LTM Revenue: $42.3bn - LTM EBITDA: $13.1bn
- LTM EV/Revenue: 5.3x - LTM EV/EBITDA: 17x
Company Details (Antelliq)
Antelliq, previously Allflex Group, is a French animal healthcare technologies company, majority owned by leading European private equity firm BC Partners. Antelliq is a global leader in digital animal monitoring, with its flagship livestock identification product Allflex.
- Founded in 1849 and headquartered in Vitré, France
- Chair: Jean-Baptiste Wautier CEO: Stefan Weiskopf
- Number of employees: 1,900
Projections and Assumptions
Short term consequences
Merck’s stock price fell by 2.5% to $76.48 on the news of the acquisition, possibly due to concerns of Antelliq’s debt. Nevertheless, Antelliq made $405.9m in sales to 30th September 2018, and this acquisition will endow Merck with a large and well-established global customer base for future agtech products.
MAH has been expanding rapidly in recent months, investing in new manufacturing and warehousing facilities across the US and UK in paticular, to increase production capacity. Merck continues to acquire smaller agtech companies to expand its broad portfolio of products to meet rapidly growing demand in this sector, bucking the trend of divestment of human-focused pharmaceutical giants away from animal healthcare. Antelliq has pioneered livestock technologies and will allow Merck to capitalise on the growing market for identification and monitoring technologies. As animal welfare, and food safety standards continue to rise - the global food traceability market accounted for $11.3bn in sales in 2017 – digital animal monitoring is set to become a highly profitable area of expansion for Merck. More specifically, given Merck’s dominance of the animal vaccine market, it seems that the monitoring technologies offered by Antelliq could greatly enhance Merck’s customers’ ability to predict and monitor diseases in real-time, no doubt a key factor behind Merck’s rationale for the timely acquisition.
Long term upsides
Following the integration of Antelliq in the MAH division, the acquirer will be able to fully exploit the market-based deal synergies, namely the considerable opportunities for technological development and the cross-platform solutions’ delivery times. Combining Merck’s existing financial and R&D knowledge and infrastructure resources with the target’s existing client base, MAH will be in the position to increase monitoring parameters’ efficiency, hardware reliability, particular in-depth analysis and sustain improvements of the general livestock management processes. Moreover, the clients of Allflex, Sure Petcare and Biomark may be presented in real-time conditions with products or services provided by MAH and suited for the current livestock or pet care issue (being veterinary assistance, specific medical treatment or adjusted animal disease products).
Since major investors have not yet courted the agtech field, the current deal highlights the agtech start-ups' opportunities to evolve. Merck’s positioning in using technology and data for animal identification affirms the importance and growth potential of the benefits for animals. As multiple commentators considered it, the acquirer may develop and optimise, in an expansive outlook, the current analysis and health monitoring portable technology to also fit human medicine.
Risks and Uncertainties
After integrating the biotech pioneer Viralytics into its current immuno-oncology operations, Merck settled the current deal to strengthen the Animal Health Division which generated about $4.2 million in sales (10% of the total group sales performance). Analyzing the rationale, one might say that acquirer deviates from its core businesses by expanding into auxiliary fields, where performance can sustain the delivery of core-related product portfolios and thus generate value. While Merck still maintains a strategical differentiation in the pharma market, it will be a challenge to ensure the achievement of complete operational synergies through the desired market strategies.
The successful delivery of the KEYTRUDA (Pembrolizumab for multiple cancer types combatting) has further pushed Merck’s R&D ambitions concerning the core business aspects. Antelliq is undoubtedly able to beneficiate from industry-specific and deep-medical knowledge to improve its current product range. However, the software and hardware development issues arise given that Merck has no superior expertise in these fields, meaning that acquiring outsourced tech knowledge will be required.
MAH will be confronted with future market conditions, especially the main target’s competitors (Destron Fearing and Ketchum MFG) since both companies are aiming to develop their tagging divisions. In particular, significant improvements are envisaged for the hardware reliability, composition materials and practicality of use for farm-owned livestock and home pets respectively.
“It seems that the only thing hotter than human health deals in 2018 has been animal health deals, whether it be food (General Mills buying Blue Buffalo), veterinary services (Henry Schein spin-off/merger), diagnostics (Zoetis buying Abaxis), medicine (Elanco IPO) or the sorts of ancillary services that Antelliq provides.” – Dan Primack, Axios News
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