UDG builds €600m acquisitions war chest as profits soar

UDG Healthcare, a provider of outsourced services to drug companies, has headroom to carry up to €600 million of acquisitons after selling off its low-margin legacy pharmaceutical wholesale division this year, according to the group’s chief executive.

"Our preference is to be doing deals north of €100 million," said chief executive Brendan McAtamney in an interview with The Irish Times after the company reported a 18 per cent increase in first-half profits, to €41.2 million.

The company’s focus is on purchases in the US after its head of mergers and acquisitions, Liam Logue, moved from Ireland to the other side of the Atlantic in the past year, he said.

“There are always between three and five [potential deals] in the hopper at any point of time -- at different stages of discussions,” said Mr McAtamney.

The last six months have been tranformational for UDG, having disposed of its legacy Irish distribution business in April for €407.5 million.

UDG's business is now concentrated in two businesses: Ashfield, which provides drumakers such as AstraZeneca and Pfizer with outsourced services such as sales reps and healthcare communications; and Sharp Packaging, a provider of barcoding in an in an increasingly regulated field for drug serialisation.

Ashfield’s operating profit grew by 7 per cent and Sharp’s increased by 25 per cent on an underlying basis, driven by momentum in its US business.

Mr McAtamney, presiding over his first set of results as chief executive officer, said the main acqusition focus is on finding businesses to build out the Ashfield division in the US. In April, the unit bought a UK-based healthcare communications business, called Pegasus, in a deal worth up to £16.8 million (€20.9 million).

The CEO said UDG currently has a net cash position of about €150 million after the disposals and borrowing facilities could boost its purchasing firepower to between €550 million and €600 million.

“Our board is very supportive even if we have to go out and raise equity [FOR A DEAL],” said Mr McAtamney. “But we’ve a pretty good history of strong financial discipline.”

In the six months through March, group profit growth was helped by favourable currency movements, the benefit of which is likely to ease in its financial second half. On a constant currency basis, profits rose 10 per cent.

Revenue from continuing operations rose 6 per cent to €472.4 million on the prior-year period.

UDG, where Mr McAtamney this year succeeded the company's long-standing CEO Liam Fitzgerald, reiterated its full year guidance for 6 per cent to 8 per cent earnings growth on a constant currency basis.

“The group’s activities and strategy continue to be supported by the strong growth outlook for the outsourced healthcare services market, said Mr McAtamney.

"A particular highlight was the strong underlying organic growth at Sharp, building on the momentum generated in recent trading periods," said Jack Gorman, an analyst with Davy.

However, the analyst said he may lower his forecasts for the company for the second half of the year, given “deteriorating currency trends.”