Management puts Pethealth Inc up for Sale

Rumours about Pethealth Inc. being available for sale appear to be true. Industry speculation about North America's third largest provider of pet insurance began to surface earlier this summer.

The first evidence of this move came on August 19th when the Wall Street Journal published a Pethealth (TSX:PTZ) statement that had the regulatory approval of security authorities. It gave no indication of a specific purchaser or path to sale, however, it mentioned evidence of unusual market activity with respect to the common shares of Pethealth. 

Read WSJ article

On August 22, Industrial Alliance Securities analyst Fred Westra, reported his assessment of the value of Pethealth. While it is unclear if the Company can sell itself, Westra sees a much higher share value than current markets have priced.

Then, on Tuesday, August 26th, Pethealth confirmed that it was “reviewing strategic alternatives for the potential sale of the company”.  Westra says this is street code that means “available for the right price”.

Westra claims there is “tremendous value” in Pethealth. Westra tackled the value of the company by examining the value of three units; its insurance business, its microchip and database operations, and its online adoption service:

• Westra  compares Pethealth’s insurance business to peer Trupanion (NYSE:TRUP) and arrives at a value of between $60-$80million.
• Westra compares Pethealth's microchip and database business to U.K.-based Animalcare PLC (LON: ANCR) to assign a value of more than $35-million.
• Westra believes the company’s Petango brand and ecommerce business is worth about $20-million, based on transactions by Discovery Communications (NASDAQ:DISCA), by Nestle Purina, and by PetSmart (NASDAQ:PETM).

Pethealth competitors, many of whom are members of the North American Pet Health Industry Association (NAPHIA) declined to comment on this development or the implications it might have for industry. According to industry sources, Pethealth did not participate in this industry wide association of healthcare insurance providers.

Westra’s 'sum-of-the-parts' valuation has him arrive at a price of $3.34 for Pethealth, but he says he could see upside as a high as $4.00 per share. However, at the time of his report, Westra continued to value the company based on an assumption it will remain independent.

Westra believes Pethealth will post adjusted EBITDA of $5.8-million on revenue of $52.2-million in fiscal 2014, numbers he thinks will rise to adjusted EBITDA of $8.1-million on revenue of $59-million the following year.


Upon completing his report, Westra maintained a STRONG BUY recommendation and 12-18 month target price of $2.50, implying a return of 37%.