Prestige Brands Shows International Ambition In Care Pharmaceuticals Buy
This article was originally published in The Tan Sheet
Executive Summary
The acquisition of Australian OTC firm Care Pharmaceuticals brings Prestige Brands a portfolio of pediatric and women’s health products, as well as potential entrée into additional Asia Pacific markets.
Prestige Brands Holdings Inc. follows through on plans to stretch its U.S.-centric business internationally with the acquisition of Australian OTC firm Care Pharmaceuticals Pty Ltd.
Prestige has enjoyed strong growth in recent years through the addition of consumer products from GlaxoSmithKline and Blacksmith Brands, as well as organic growth of core brands such as Clear Eyes and Little Remedies following investments in advertising and promotion.
By adding Care Pharmaceuticals’ portfolio to the mix in the deal effective July 1, Prestige diversifies its geographic focus and gains a platform for expanding distribution of its U.S. offerings to Australia, New Zealand and other Asia Pacific markets.
Children's Paedamin
Image courtesy of Care Pharmaceuticals
Care, founded in 1986 and based in New South Wales, is a niche player in the Australian OTC sector, with annual revenue of about $18.2 million (Australian $20 million under July 9 exchange rates). Terms of the deal were undisclosed.
Care’s portfolio includes the Fess brand of cold/allergy and saline rinse products, Children’s Paedamin antihistamine and decongestant, and Fab Iron supplements. Coincidentally, Care has its own unrelated line of “Little” pediatric OTCs, including Little Allergies and Little Coughs (see box for Care’s full product list).
Care Pharmaceuticals products
- Aci-Jel vaginal health topicals
- Children’s Paedamin antihistamine and decongestant
- Children’s Parachoc laxative
- Fab Iron tablets, capsules and liquid supplements
- Fabfol Plus prenatal supplements
- Fess saline nasal sprays and rinses
- Frequent Flyer Health Boost immune health supplement
- Little Allergies pediatric antihistamine
- Little Coughs pediatric expectorant
- Little Eyes sterilized cleansing wipes
- Maybe Baby ovulation test kit and personal lubricant
- Nasalate moisturizing nasal cream and spray
- Painstop pediatric analgesic
- Rectogesic powder, wipes and finger protectors for rectal discomfort
Opportunity In The Outback
In a July 9 release, Prestige CEO Matthew Mannelly called Care “a great strategic fit” given that it “operates under the same business model as Prestige, has an impressive portfolio of well-known brands and a track record of growth and innovation.”
Care President Malcolm Yesner, who leads the firm’s 35 employees, said Care looks forward to integrating Prestige’s Clear Eyes eye lubricants and the Murine ear wax removal system, which already have distribution in Australia and New Zealand.
Australia, still affected by a recession, offers modest growth opportunity for OTC pharmaceuticals. Market research firm Mintel in 2012 projected Australian OTC medication sales would expand 2.4% in local currency in 2013, followed by 4.3% growth in 2014.
Euromonitor International likewise projects middling but steady growth for Australia, forecasting a compound annual growth rate of 3.1% between 2012 and 2016, when OTC sales are expected to hit $2.36 billion.
New Zealand, a comparatively tiny market, is projected to grow at a CAGR of 2.4% during the same time period, reaching OTC sales of $195.6 million in 2016.
Still, as a point of entry to developing Southeast Asian markets such as Indonesia, gaining a base of operations in Australia likely appealed to Prestige. Euromonitor says Indonesia is primed to outpace the rest of the world in consumer health product sales through 2017, though distribution and regulatory challenges remain (Also see "In Brief" - Pink Sheet, 24 Jun, 2013.).
Valeant Pharmaceuticals International in 2011 acquired Australian OTC and pharmaceutical company iNova Pharmaceuticals in large part to provide “a beachhead in both Southeast Asia and South Africa,” Valeant’s CEO said at the time (Also see "In Brief" - Pink Sheet, 28 Nov, 2011.).
International Interest Emerges
With the addition of 17 U.S. brands from Glaxo in 2012, international sales have been a shrinking share of revenues for Tarrytown, N.Y.-based Prestige, though the firm has continued growing overseas.
Sales outside of North America made up 4.2% of Prestige’s business in fiscal 2011, 3.5% in fiscal 2012 and 2.7% in fiscal 2013, which ended March 31. In addition to Clear Eyes and Murine, the company sells Chloraseptic sore throat relief products internationally and also out-licenses the marketing rights to Comet household cleanser in Eastern Europe.
“Since a number of our other brands have previously been sold internationally, we seek to expand the number of brands sold through our existing international distribution network and continue to identify additional distribution partners for further expansion into other international markets,” Prestige said in its fiscal 2013 annual report.
Since the $660 million debt-financed GSK deal, Mannelly has prioritized reducing Prestige’s debt and maintained the firm’s capacity to make opportunistic acquisitions (Also see "Rapidly Growing Prestige Brands Still Positioned For OTC Pickups" - Pink Sheet, 13 Aug, 2012.). The Care purchase was funded via a combination of cash and Prestige’s existing credit facility.
Prestige anticipates a smooth integration of Care into its operations and expects the acquisition to be accretive to earnings in the company’s fiscal 2014, which runs through March 2014.
According to Janney analyst John San Marco, in light of the Care pickup, Asia Pacific now represents about 29% of Prestige’s international sales and 4% of total pro forma sales. Canada remains Prestige’s largest market outside the U.S., with approximately 57% of the firm’s international sales.
San Marco added in a July 10 research note that the bolt-on acquisition of Care appears relatively low-risk given the Australian firm’s small size and “underscores an apparently conservative approach to geographic expansion” that makes sense for Prestige.
William & Blair Co. analyst Jon Anderson said the Care deal added 4 cents to his full-year earnings per share estimate for Prestige – now expected to grow 9% year-over-year to $1.64 – and raised projected sales by $14 million to $644 million, which would represent 3.3% growth.
A Prestige spokesman said the company plans to share more details about the acquisition during its first-quarter conference call, tentatively set for early August.