UDG prepares $600m war chest for M&A deals

International healthcare services provider UDG Healthcare reported a solid performance in the first half of the year as it upped its full-year guidance by 2 per cent. With a war chest of some $500-$600 million, the group said it will seek to deliver growth both organically, and by acquisition.

Revenues rose by 8 per cent in the six months to March 31st to $578.9 million (€516 million). Operating profit rose by 13 per cent on a constant currency basis to $58.8 million, with profits before tax up by 19 per cent to $52.9 million.

UDG Healthcare chief executive Brendan McAtamney said the first half of 2017 was another “very progressive period” for the group.

“The continuing group’s earnings per share increased by 19 per cent (29 per cent on a constant currency basis), driven by continued momentum in underlying profit growth and a strong performance by our recent acquisition, STEM,” he said.

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Since October, UDG has strategically deployed about $130 million into deals such as its acquisition of STEM Marketing. And with “firepower” of as much as $600 million, from a combination of debt and cash, Mr McAtamney says UDG has an eye on doing more deals, but “the really important thing is to get the right capability”.

With 52 per cent of UDG’s profits now coming from America, US-based companies will be a target “we want to scale up there”. Mr McAtamney said UDG would also be open to bolt on acquisitions in Europe and Japan.

UDG, which employs some 2,000 people in the UK, is now most exposed to the dollar-sterling exchange rate. However, Brexit has not had a significant impact on the company’s performance as yet, according to Mr McAtamney.

“I’m hopeful that common sense will prevail and that a reasonable trading corridor will emerge at the end,” he said.

Looking to the full year to September 30th, Mr McAtamney said that the group is increasing its guidance for constant currency diluted earnings per share for the year by 2 per cent to a range of between 15 per cent and 18 per cent ahead of last year.

Profit contribution

Ashfield, the group's largest division by profit contribution, operating in the commercial, clinical services and communications space, reported operating profit growth of 18 per cent, driven by a combination of organic and acquisition growth. Sharp, the group's contract packaging arm, reported an 8 per cent jump in operating profit, driven by continued growth in Sharp US and an improvement in Sharp Europe.

In a note, stockbroker Davy said the outlook for the group remains “exciting”, given both the organic and inorganic prospects, and its estimated balance sheet capacity of about $500-$600 million.

UDG said it would increase its interim dividend by 5 per cent to 3.58 cent per share.

Also on Tuesday, the group announced an agreement to acquire Sellxpert, a German contract sales organisation, for up to $14.4 million. The acquisition “will strengthen Ashfield Commercial and Clinical’s presence and capabilities in Germany” the group said.