Apiam is staying busy in M&A as it builds a dominant regional vet network – here’s how the numbers stack up
Health & Biotech
Health & Biotech
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The company is snapping up earnings-accretive deals as it takes advantage of a generational market opportunity in regional growth corridors.
Investors tracking the progress of veterinary and animal health company Apiam (ASX:AHX) would know that the company has been executing on an aggressive M&A push in recent months.
Recent deals have seen it build a strong presence in southeast Queensland, starting with the acquisition of three leading vet clinics in late May.
That has followed by a deal that settled today for Scenic Rim Vets, a larger mixed-animal practice which also runs a state-of-the-art equine clinic in close proximity to horse studs in the SEQ region.
And talking with Stockhead, Apiam CEO Dr Chris Richards highlighted the relative earnings strength that Apiam has incorporated, as it establishes a national network for long-term growth.
For starters, Richards assessed the contribution to group earnings from all four acquisitions based on the data reported in Apiam’s market announcements.
In combination, the new clinics are expected to contribute a further $16.9m in annual revenues.
That’s forecast to flow through to accretive core earnings (EBITDA) of $3.82m, on a total consideration paid of $22.3m.
“As shown by these recent deals, we are expecting to continue to acquire strategic clinics at similar or lower multiples,” Richards explained.
In a research note published at the time of the Scenic Rim announcement, Shaw analyst Jonathon Higgins put an estimated EV/EBITDA ratio of 10.3 on the stock, which is expected to report its’ results at the end of August.
“So each subsequent acquisition is expected to continue to be earnings accretive to the company.”
In that context, he said more opportunities are expected to open in the second half of the year, as Apiam moves fast to leverage its strong cashflow and debt facilities and capitalise on its regional network advantage.
“With a strong pipeline of new deals, we expect to continue to acquire more high-quality clinics with strong growth opportunities over the next few months,” Richards said.
While Apiam stays busy on the M&A front, Richards also highlighted the key sector trends behind the pick-up in activity.
As a national vet network, the company is finding that growth rates for many regional vets are picking up amid the well-documented demographic shifts that are taking place in the wake of the pandemic.
Population rates outside capital cities are soaring, and many regional vets are at or near capacity to meet demand.
In that context, deal offers are coming straight to Apiam’s door. Here’s Richards on why that’s happening:
“The change in population demographics and increased animal ownership rates are seeing an increased need for vet services. And at the same time, vets are being required to work longer hours to support the growth in their clinics,” he said.
“These companies are looking for support. And what Apiam brings is an integrated network of services and back-end systems to help with workflow.”
“But most importantly, we have the resources to support initiatives that improve the work-life balances for our vets. We can deploy our tele-triage service, which basically reduces after-hours phone calls to the vets by more than 50% allowing vets to focus on the priority cases and be much more productive when on call.”
“And we also offer an attractive employee value proposition for upskilling and career progression. So, the net result is that we’re being sought out by clinics looking for support to guide them through this high growth period.”
Among national vet networks, Apiam is also the most culturally aligned with regional clinics and is the only large player pursuing a dedicated regional growth strategy.
And in line with the broader macro tailwinds forming behind the sector, the company is now ideally positioned to drive earnings-accretive growth through M&A as it continues to capitalise on a generational market opportunity.
This article was developed in collaboration with Apiam, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.