Cinven Pays $1.3 Billion For European Diagnostics Provider Labco
By Jof Enriquez,
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Private equity firm Cinven recently purchased a majority stake in European diagnostic laboratory operator Labco S.A. The acquisition reflects the continuing growth of the clinical diagnostics space as more emphasis is placed upon preventive health services.
According to Bloomberg, Cinven agreed to buy Paris-based Labco for €1.2 billion ($1.3 billion). Labco’s group of owners was led by 3i Group Plc., which had held 17 percent of Labco prior to the deal with Cinven and will reportedly receive £41 million ($63 million) from divestment of its stake.
Labco operates more than 160 routine and specialist laboratories and over 1,000 collection centers in France, Spain, Italy, Portugal, Belgium, and the United Kingdom. It also has outsourcing contracts to perform diagnostics with hospital clients across Europe. Labco conducts over 150 million tests on about 20 million patients across Europe annually.
According to a press release from Cinven, one of the reasons it bought Labco was because of strong prospects for growth in the European diagnostics space. The sector is worth more than €75 billion, with the clinical laboratory segment representing about 33 percent. Growth in this segment comes amid a paradigm shift toward preventive healthcare, as early disease detection could reduce overall healthcare costs and improve patient outcomes.
"Labco is a high quality business in the European clinical diagnostics sector," said Alex Leslie, senior principal at Cinven, in the release. "This sector is growing strongly as a result of ageing populations; an increasing focus on the early detection and prevention of illnesses; and the opportunities for healthcare cost savings. The volume of private hospitals outsourcing their clinical laboratory testing is also rising significantly.”
According to Cinven, expenditures on predicting, preventing, and diagnosing diseases will grow from about 20 percent of healthcare spending today to about 30 percent by 2020. As pressure to curb expenses intensifies, hospitals are more willing to outsource diagnostic testing to third-party providers.
Cinven said the purchase of Labco is a prelude to acquisitions of similar businesses in the consolidating European medical diagnostics space. The company also recently bought diagnostic companies Phadia and Sebia.
“Labco has generated significant growth across Europe, so it makes huge sense for us to partner with a private equity sponsor with a strong European presence, a proven track record in the healthcare sector, including through past investments in diagnostics. Cinven will have the ability to help us support the growth of our business and services internationally," said Philippe Charrier, CEO of Labco, in a statement.
Cinven's deal to acquire Labco comes weeks after the latter abandoned plans for a public listing in Paris, citing volatility in the stock market, according to the Financial Times. FT reports that "the transaction values Labco at just over eight times its earnings before interest, tax, depreciation and amortisation on a pro forma basis, versus an average multiple for buyouts last year of 10 times, according to data from S&P LCD."
According to a source cited by Reuters, Labco posted 2014 earnings of €131 million before interest, taxation, depreciation and amortisation (EBITDA), resulting in an EBITDA margin of about 20 percent.