Health and Healthcare

Monday's Merger That No One Saw Coming

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Mergers and acquisitions are a way for companies to come together and complement each other’s business models. Most M&A makes sense. Whether companies need to consolidate within an industry or bolt on another facet to the business, there is generally a good reason behind it. However, one acquisition stood out on Monday that had some investors scratching their heads at first glance.

It was announced that pet health care provider VCA Inc. (NASDAQ: WOOF) would be acquired by Mars, which is primarily known for its candy business. With just a quick look, one might think that a company that makes chocolate should probably stay away from a company that provides health care to dogs and other animals. But there is more to the story. It’s also worth mentioning that VCA is not the only company popping on M&A news on Monday.

Although the candy business is the primary revenue generator for Mars, the company also operates a pet nutrition segment, with brands like Pedigree, Whiskas and Iams. As recent as 2014, the company posted revenues of roughly $33 billion on the year, and it has been growing since.

According to the agreement, Mars will acquire VCA for $93 per share, or a total value of $9.1 billion, including $1.4 billion in outstanding debt. The transaction was unanimously approved by both boards of directors.

With the acquisition of VCA, Mars is looking to provide “an unprecedented level of access to high quality veterinary care for pets, from wellness and prevention to primary, emergency and specialty care.”

VCA has grown to nearly 800 animal hospitals with 60 diagnostic laboratories throughout the United States and Canada, since its inception in 1986.

Grant F. Reid, CEO of Mars, commented:

We are thrilled to welcome VCA to the Mars family and to our portfolio of brands and businesses around the world. VCA is a leader across pet health care and the opportunity we see together—for pets, pet owners, veterinarians and other pet care providers —is tremendous.  We have great respect for VCA, with whom we share many common values and a strong commitment to pet care.  Together, we will be able to provide even greater value, better service and higher quality care to pets and pet owners.

Shares of VCA were last seen up about 28% at $90.62 on Monday, with a consensus analyst price target of $74.70 and a new 52-week trading range of $44.00 to $91.00.

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