PetIQ to acquire VIP Petcare in $220M deal
PetIQ announced it has entered into a definitive agreement to acquire Community Veterinary Clinics, LLC d/b/a VIP Petcare, a leading operator and provider of nationwide veterinary clinics and veterinarian services within major U.S. retailers. The transaction has been unanimously approved by PetIQ's board of directors and is expected to close by the end of January 2018, subject to customary closing conditions. The transaction is valued at approximately $220M, comprised of $100M in cash, up to an additional $30M payable pursuant to promissory notes issued to VIP Petcare Holdings, and 4.2M membership units of PetIQ Holdings LLC and a corresponding 4.2M shares of PetIQ's Class B common stock issued to Seller, valued at approximately $90M, based on the closing share price of PetIQ's stock on January 5, 2018. Of the $30M in promissory notes payable to the Seller, $20M is payable contingent upon the achievement of certain performance-based financial targets over the next two calendar years. PetIQ plans to finance the cash portion of this transaction with $25M of existing cash on hand and $75M of new debt with secured financing commitments from East West Bank and Ares Capital Management LLC. Pro-forma for the transaction, net leverage is expected to be approximately 1.6x to 1.8x for LTM Adjusted EBITDA for the calendar year ending December 31, 2018. The transaction is expected to close by the end January 2018, subject to customary closing conditions. In connection with execution of the transaction agreement, PetIQ will issue options to purchase an aggregate of 800,000 shares of Class A common stock of PetIQ to 30 employees hired in connection with the transaction as employment inducement awards pursuant to NASDAQ Listing Rule 5635(c)(4). 100,000 of the options will be issued to Will Santana, who entered into a new employment agreement with PetIQ, effective upon closing of the transaction. The grant date for all of the options is January 5, 2018 and the exercise price is $21.37, the closing price of PetIQ's Class A common stock on such date. The options vest in equal annual installments on each of the first four anniversaries of the closing date of the transaction agreement, generally subject to continued employment through each vesting date. The options will vest on an accelerated basis in the event of a termination of employment without cause.