Perrigo's pending $49 million acquisition of Orion Laboratories marks the private labeler's entrance into the promising Australian OTC market and adds a "beachhead" for the firm's continued global expansion, analysts say.

Perrigo announced March 1 it signed a definitive agreement to acquire Orion Laboratories, a leading supplier of store brand OTCs in Australia and New Zealand.

The acquisition, which the firms expect to close in the next few weeks, will add more than $30 million to Perrigo's annual sales, and will be accretive within a year, the Allegan, Mich., firm predicts.

Perhaps more significant than the sales increase - equal to around 1.5 percent of Perrigo's fiscal 2009 revenue - is that the deal also gives the firm access to an important potential growth market, said Morningstar analyst Debbie Wang.

Perrigo spokesman Art Shannon acknowledged the private labeler targeted Orion, based in Perth, Western Australia, to expand its global footprint and gain access to an "attractive" market.

Perrigo is funding the Orion acquisition with proceeds from the sale of its Israeli Consumer Products business for $54 million to Emilia Group, a subsidiary of O. Feller Holdings Ltd., in a deal that closed March 3 (¹ 'The Rose Sheet' Nov. 9, 2009, In Brief).

U.K. Private Label History Is A Model

Australia's OTC market is worth $2.6 billion with private-label penetration in the low single digits, Shannon said. "We believe we can help it grow."

Australia's and New Zealand's OTC store brand markets "have a lot of potential for growth," and are similar to the store brand market in the U.K. 10 years ago, said Louise Chen, an analyst with Collins Stewart.

Private-label consumer health product sales climbed 20 percent in the U.K. from £233.9 million in 2001 to £282.3 million in 2009, according to Euromonitor International. (On March 1, 2001, £1 equaled $1.44, and on March 1, 2009, £1 equaled $1.43.)

Private-label penetration in the U.K. is about 40 percent currently, Chen added. If Australia's and New Zealand's markets follow a similar path of growth, then Perrigo's most recent acquisition will be a "highly valued" deal, she said.

Perrigo likely will use Orion's product pipeline, local marketing and distribution capabilities to increase penetration of store brand products in the region, according to a March 1 analyst note from William Blair & Co.

Orion's portfolio includes several branded products including Rivacol (chlorhexidine) mouthwash, Viodine gargle for sore throats and Urecare for dry skin.

The firm also manufacturers and distributes pharmaceutical products to hospitals in Australia, including several hand sanitizers.

In a letter to customers, Orion maintains it will "remain independent" following the deal's closing,

Perrigo Expands Its Empire With Small Deals

Perrigo's pending acquisition of Orion is in keeping with its goal to grow through small, bolt-on acquisitions that expand its business by geography and product category, analysts agree.

Perrigo's strategy is to establish "a beachhead as far and wide as they can" to "solidify its position as really the biggest supplier of store branded generic over-the-counter remedies," said Wang.

Perrigo made similar deals in 2008 when it acquired Laboratorios Diba in Mexico and U.K.-based private label supplier Galpharm (² Also see "Perrigo Bets On Mexican Private Label Growth With Laboratorios Diba Buy" - Pink Sheet, 13 October, 2008.).

Those acquisitions, along with other recent additions, contributed $36 million in incremental sales to Perrigo's Consumer Healthcare segment in the quarter ending Sept. 26 (³ Also see "Perrigo Strives To Stand Out Against Incoming Private Label Competition" - Pink Sheet, 9 November, 2009.).

The Orion deal also could add nearly 5 cents to Perrigo's earnings per share by fiscal 2011, analysts with William Blair estimate. Perrigo did not provide EPS guidance.

- Elizabeth Crawford ( ⁴ e.crawford@elsevier.com )

Perrigo Will Acquire Orion Labs To Reach Australian Market

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