Atrium, a majority-owned subsidiary of Aeterna Zentaris, says that the acquisition will be immediately accreditive to shareholders, since earnings per share will increase 50 percent, as EBITDA (earnings before interest, tax, depreciation and amortization) soar from around C$31 million to C$48 million.
"This strategic acquisition allows Atrium to become the leader in the United States and in North America in the nutritional supplements market for healthcare professionals," said Luc Dupont, Atrium president and CEO.
HVL (Douglas) sits comfortably side-by-side with Atrium's existing subsidiary Pure Encapsulations, which it acquired in 2004. However the two entities target their customers in quite different ways: Douglas through a team of sales representatives and Pure Encapsulations through reference guides and educational pamphlets.
This means that there is very little overlap in the customer-base, which adds up to 40,000 health care professionals (10,000 from Douglas).
Atrium plans for the two subsidiaries to remain autonomous with regard to marketing and product development, but there will be some opportunities for cross-marketing products in some business units and geographical markets, and cross-training.
Synergies in the areas of research and development, purchasing and other manufacturing costs, optimization of sales force, and finance and administration are expected to yield around C$1 million in savings over an initial 12 to 18 month period.
The company has said that it is not expected that these synergies will be brought about through job losses. Rather, it has been looking at the acquisition over several quarters and has come up with a progressive integration plan to link corporate cultures and business objectives, without a headcount reduction.
Members of Douglas' management team are staying on and becoming Atrium shareholders.
Dupont added that the acquisition "marks a major step in our company's growth strategy aimed at positioning each of our two divisions as worldwide leaders," and gives it critical mass amongst the companies addressing the health and personal care needs of the swelling number of baby boomers.
In particular, the company has carved out a flexible financial structure that will allow it to continue its organic growth strategy. Its new C$125 million 3-year revolving credit facility can be increased to C$200 million if required.
Part of the initial C$125 million will go towards the C$97 million cash element of the transaction, with the remainder covered by cash-in-hand. Around C$10 million of the purchase price is paid to Douglas management shareholders in subordinate voting shares, at $10.95 per share.
For the fiscal year ended September 30, HVL reported revenues of C$81 million. It has a portfolio of 960 products and, besides Douglas Laboratories, its brands include Advanced Medical Nutrition Incorporated, Health Yourself and Intelligent Health. Health care practitioners make up 80 percent of its customer base, with private label accounting for the remaining 20 percent. It has a 150,000 square foot plant in Pittsburg.