Fairfax Financial Holdings Ltd. has struck a deal to acquire Oakville Ont.-based Pethealth Inc. for $100-million, boosting its bet on the burgeoning pet insurance market.
Fairfax will pay $2.79 per share in cash to acquire all of Pethealth's outstanding common shares, a 26-per-cent premium above the company's closing price on Friday on the Toronto Stock Exchange. The deal is expected to close in the fourth quarter of 2014.
Pethealth is the second-largest pet insurer in North America, and the top distributor of microchips for retrieving lost pets. The company has 70 per cent market share in animal microchipping in Canada, 40 per cent share in the U.S. and 15 per cent of the U.K. market. It also runs an online pet adoption site, Petango.com, and is a leading provider of management software to animal welfare organizations.
This is the second pet insurance business that Fairfax, the financial services holding company led by Prem Watsa, has snapped up. In May of 2013, Fairfax acquired Ohio-based Hartville Group Inc., which is among the oldest and largest American pet insurance providers.
The market for pet insurance is growing as devoted owners look to spread out the cost of large veterinary bills that can accumulate if their pet falls seriously ill. Whereas sick pets used to be put to sleep as a matter of course, many owners now opt for treatments that can cost hundreds or thousands of dollars.
The pet insurance market is estimated at $595-million (U.S.), according to the North American Pet Insurance Associations (NAPIA), and shows room for considerable growth. Canada has 14 million cats and dogs, but only 3 per cent of them are insured, which is well below some other countries.
Two days after Pethealth announced it was up for sale on Aug. 19, analysts at Industrial Alliance Securities Inc. predicted the company's revenue could rise to $52.2-million (Canadian) in 2014, up from $42.2-million last year. They also anticipate the pet insurance arm of the business alone could be worth $60-million to $80-million in future.
The transaction is also subject to regulatory approval in the U.K.