There is more than one way to grow a business, and animal healthcare company Zoetis (ZTS 1.50%) has shown that making acquisitions can be a viable option. Over the past few years, Zoetis has expanded by buying businesses in tangential areas to its core animal pharmaceutical business. Will this buying spree pay off?
Zoetis' veterinary diagnostics play
Zoetis has made no less than eight acquisitions over the past few years, half of which are related to its push into the veterinary diagnostics space. Animal health diagnostics is one of the fastest-growing parts of the veterinary industry, with a high-single-digit growth rate expected in the coming years.
| Company Acquired | Year | Purchase Price | Description |
|---|---|---|---|
| Abaxis | 2018 | $2 billion | Global leader in point-of-care diagnostics with a portfolio of instruments and testing kits |
| ZNLabs | 2019 | $35 million | Full-service veterinary reference labs |
| Phoenix Lab | 2019 | $150 million | Comprehensive services and access to clinics throughout the Northwest |
| Ethos Diagnostic Science | 2020 | N/A | Reference lab services with locations in Boston, Denver, and San Diego |
Data source: Company financial reports and press releases.
Zoetis' $2 billion acquisition of Abaxis in 2018 was the company's most substantial acquisition, and it also marked the company's entrance into the veterinary diagnostics market. Abaxis provides veterinary equipment, testing kits, and other tools used to help veterinarians test for and diagnose diseases. The Abaxis acquisition gave Zoetis a strong base on which to build its diagnostics business.
Zoetis has made additional diagnostics-related acquisitions to continue building this business segment. Notably, Zoetis has acquired three reference laboratories that are used to process the tests run on the Abaxis equipment.
Image source: Getty Images.
All of these acquisitions put Zoetis squarely in competition with Idexx Labs (IDXX 2.44%), the leader in the veterinary diagnostics industry. Idexx is currently the undisputed champion within diagnostics, bringing in almost $2.4 billion in diagnostic revenue in 2020 compared to Zoetis' $305 million. Zoetis will have a lot of catching up to do, as Idexx has a strong global presence and a sticky business model centered around being a one-stop shop for veterinarians in diagnostics.
However, there is significant upside to be had if Zoetis can make inroads in diagnostics. The diagnostics business itself is attractive but Zoetis can probably sell more pharmaceuticals to clinics if it has a more holistic relationship with them. This is all to say that it will be interesting to see how Zoetis continues to build its diagnostics business through acquisitions and organic growth.
Zoetis' other acquisitions
Outside of diagnostics, Zoetis has been pursuing bolt-on acquisitions to improve its smaller operating lines. For example, Zoetis' recent acquisition of Performance Livestock Analytics adds a software platform that it can sell to farmers to make farms more efficient.
| Company Acquired | Year | Purchase Price | Company Description |
|---|---|---|---|
| Platinum Performance | 2019 | N/A | Provides animal health nutrition drugs |
| Performance Livestock Analytics | 2020 | $140 million | Helps improve livestock farming by combining automated data collection and analytical software |
| Fish Vet Group | 2020 | $20 million | Handles environmental analysis for fish producers and offers diagnostic lab services. |
| Virtual Recall | 2020 | N/A | Helps with veterinary practice management by using automation to reorder medicines and book appointments. |
Data source: Company financial reports and press releases.
By the looks of the company's acquisitions, Zoetis is building a diverse array of products above and beyond its legacy in pharmaceuticals that it can leverage to grow into tangential businesses such as diagnostics and business management.
The strategy will be successful if Zoetis can drive meaningful growth from these new business lines. It may be too early to judge, but so far Zoetis still primarily makes its money from selling pet and livestock pharmaceuticals. Diagnostics and business management tools are interesting products, but they are not moving the needle for the company yet.
Long-term growth in animal healthcare
Zoetis is one of the largest animal healthcare companies, which is primarily attributable to its massive success in pharmaceutical products. However, the company has also used acquisitions to break into other areas of animal care.
Growth investors should pay attention to what Zoetis is doing. The animal healthcare industry has been growing at an attractive clip due to positive trends in pet ownership, spending per pet, and the increasing demand for livestock animals to feed the world.
