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CD&R, TPG put a leash on Covetrus in $4B deal

Sarah Pringle
May 25, 2022
Illustration of a cat with an x-ray view of its stomach revealing a dollar sign.

Illustration: Brendan Lynch/Axios

Clayton, Dubilier & Rice and TPG Capital have clinched a take-private deal for Covetrus that values the animal health tech and services company at approximately $4 billion.

Why it matters: The deal reflects the opportunity to unlock differential value in the private markets relative to living with the constraints of the public markets — and focus on the long-term strategy — in today's uncertain landscape.

Details: CD&R is rolling 100% of its existing stake while injecting new capital alongside TPG. That pans out to about two-thirds and one-thirds ownership stakes, respectively, sources close to the deal tell Axios.

  • At $21 per share, the all-cash agreement reflects a 39% premium to Covetrus' 30-day volume-weighted average share price. Shares were trading around $20.24 on Wednesday morning.
  • The ~$4 billion EV implies 14x to 15x the company's adjusted EBITDA guidance for 2022, or just north of 16x 2021 adjusted EBITDA.
  • Goldman Sachs and Lincoln International advised Covetrus; Deutsche Bank, UBS, BMO Capital Markets and Mizuho Securities USA provided committed debt financing for the transaction, and are advising the PE firms.

Catch up quick: While Covetrus ran a broad process encompassing strategics and sponsors, as Axios wrote previously, this was a unique situation given CD&R's deep roots with the company's predecessor.

  • CD&R's investment dates to July 2015, when it injected an initial $40 million in predecessor Vets First Choice, Axios reported previously.
  • Vets First Choice later merged with Henry Schein’s animal health business to create Covetrus, and the combination went public in 2021.
  • CD&R ahead of IPO had injected a total of $100 million into Vets First Choice, and in 2020 — at the height of COVID — invested an additional $250 million convertible preferred equity investment into the company.

💭 Thought bubble: Already a 24.2% shareholder, CD&R is the best outright buyer in the private markets, while the TPG partnership adds both price validation and additional operational resources and experience in the space.

State of play: While different units of Covetrus compete with different players (ranging from Patterson Veterinary to VetSource to Idexx Laboratories' software platform ), the company is unique in its ability to service veterinarians and manufacturers holistically across multiple channels, and globally.

  • Covetrus has a supply chain products and distribution business; direct-to-home prescription pharmacy and compounding medications businesses; and a software and technology arm that improves veterinary office efficiency.
  • Certain participants in the process liked some, but not all of the company, sources said previously.

Yes, but: CD&R and TPG have no current plans to exit any line of business, the sources close to the deal say, noting that organic growth prospects are strong and tuck-in M&A opportunities may also be in the cards.

  • The firms are positioned to invest behind offerings across all business lines, and particularly on the technology side, they say, in a way that would be difficult as a public company today.

The bottom line: Having gone from $55 million of top-line in 2015 (VFC) to north of $4.6 billion in revenue today, Portland, Maine's Covetrus is at yet another inflection point.

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