Cerba Healthcare SAS
Primary Preview: Cerba Acquisition Flurry Pushes Leverage Up; Strategic Rationale, Synergies, Equity Check, Track Record Offset Concerns
Fri 02/11/2022 12:38 PM
The recent acquisition spree at Cerba Healthcare SAS relevers the France-based laboratory services group, and while the eventual unwind of its Covid-driven revenue boost means earnings will come off their recent peak and cash generation will fall, the deals make sense strategically. The acquisitions - of Labexa for €432 million, Viroclinics for €656 million and Project Milk for €412 million - are supported with fresh equity by sponsor EQT and create significant synergies. Cerba also has a solid track record integrating previous acquisitions, prospective investors told Reorg.
The group is raising a new €650 million non-fungible term loan C due 2029 and increasing the size of its RCF by €50 million to €450 million. It will use the proceeds, €560 million of additional equity, a €150 million draw under its RCF and cash on balance sheet, as well as rolled-over leases, equity and lines, to fund the three bolt-on acquisitions. Together with the rolled leases, debt repayments and fees, the acquisition spend amounts to a total of €1.7 billion.
Cerba is marketing the deal on the back of €652 million pro forma adjusted full-year 2021 EBITDA. Based on €4.212 billion net debt, this pushes net leverage back up to 6.5x.
While the relevering is a concern, it is offset by the combined €2.477 billion of equity committed by shareholders, amounting to a chunky 42% of the group’s total 11.4x capitalization. EQT, the majority shareholder, is not scared of writing an equity check when needed, one of the sources noted.
Having come not long after Cerba swooped for Italy-based peer Lifebrain, the three additional bolt-ons raised some fears that the group could be embarking on an uncontrolled acquisition spree and entering disparate markets with different regulatory regimes, like its peer Biogroup, another source said. However, the three latest bolt-ons all have a compelling strategic rationale, investors concurred.
Labexa and Project Milk are both French diagnostics and laboratory services groups, which will strengthen Cerba’s position in its home market and boost its economies of scale. The acquisitions are basic plug-and-play deals for Cerba, which has a strong track record in integrating smaller peers, and offer easily achievable synergies with little execution risk, sources noted.
Labexa is the largest independent private medical diagnostics group in New Aquitaine, with a presence in Occitania, while Project Milk is the leading provider of routine medical laboratory testing in the western region of France. Labexa generated €199 million of expected revenue and EBITDA of €61 million, while Project Milk generated an expected €118 million of revenue and EBITDA of €29 million during 2021.
Meanwhile the acquisition of Rotterdam, Netherlands-based Viroclinics provides Cerba with a solid foothold in the complimentary CRO, or contract research organization, sector as the market leader in the specialty virology segment. The deal will add an expected €80 million of revenue and adjusted EBITDA of €33 million, as well as some much needed growth to offset the slowdown in Cerba’s underlying core laboratory services market given the virology CRO sector is growing at double-digit rates.
Cerba has a strong track record of integrating previous acquisitions and successfully realizing synergies, investors noted. Its acquisition of Lifebrain, which the group completed in August last year, is outperforming with revenue set to more than double to €487 million in 2021 from €193 million in 2020, and EBITDA more than tripling to €164 million from €50 million, although most of that is driven by Covid testing.
As a laboratory testing group, Cerba has been a direct beneficiary from the effects of Covid-19, which has fueled a huge jump in demand for its services that will tail off as the pandemic is brought under control, investors noted. Cerba’s expected revenue, excluding Lifebrain, jumped to €1.74 billion in 2021 from €1.35 billion in 2020, while EBITDA vaulted to €605 million from €403 million, with the vast majority of the improvement driven by Covid-19 testing. Revenue could drop as much as 35% to 40% if Covid testing falls away completely, but the underlying group could handle such a drop, one investor suggested.
As a result of the Covid boost, Cerba has taken a conservative approach to its structuring EBITDA for the current transaction, stripping out €258 million EBITDA gained due to Covid, which leaves it with €415 million EBITDA for the core business as a starting point. It added €101 million EBITDA for Lifebrain (including €15 million of synergies) and €136 million EBITDA for the Labexa, Project Milk and Viroclinics businesses, including another €37 million of synergies, to get to its €652 million structuring EBITDA.
The pandemic is far from over and Cerba will likely benefit from continued testing for Covid for some time, boosting free cash flow in the meantime, investors noted.
The new non-fungible €650 million TLC is guided at E+400 bps, 0% floor and a 99.50 OID. While leverage is slightly higher this time round, that looks fair given that the outstanding term loan B pays E+375 bps, investors agreed.
The new loan is rated B/B2. Commitments are due on Monday, Feb. 14, at 12 p.m. GMT.
– Robert Schach, Beatrice Mavroleon
The group is raising a new €650 million non-fungible term loan C due 2029 and increasing the size of its RCF by €50 million to €450 million. It will use the proceeds, €560 million of additional equity, a €150 million draw under its RCF and cash on balance sheet, as well as rolled-over leases, equity and lines, to fund the three bolt-on acquisitions. Together with the rolled leases, debt repayments and fees, the acquisition spend amounts to a total of €1.7 billion.
Cerba is marketing the deal on the back of €652 million pro forma adjusted full-year 2021 EBITDA. Based on €4.212 billion net debt, this pushes net leverage back up to 6.5x.
While the relevering is a concern, it is offset by the combined €2.477 billion of equity committed by shareholders, amounting to a chunky 42% of the group’s total 11.4x capitalization. EQT, the majority shareholder, is not scared of writing an equity check when needed, one of the sources noted.
Having come not long after Cerba swooped for Italy-based peer Lifebrain, the three additional bolt-ons raised some fears that the group could be embarking on an uncontrolled acquisition spree and entering disparate markets with different regulatory regimes, like its peer Biogroup, another source said. However, the three latest bolt-ons all have a compelling strategic rationale, investors concurred.
Labexa and Project Milk are both French diagnostics and laboratory services groups, which will strengthen Cerba’s position in its home market and boost its economies of scale. The acquisitions are basic plug-and-play deals for Cerba, which has a strong track record in integrating smaller peers, and offer easily achievable synergies with little execution risk, sources noted.
Labexa is the largest independent private medical diagnostics group in New Aquitaine, with a presence in Occitania, while Project Milk is the leading provider of routine medical laboratory testing in the western region of France. Labexa generated €199 million of expected revenue and EBITDA of €61 million, while Project Milk generated an expected €118 million of revenue and EBITDA of €29 million during 2021.
Meanwhile the acquisition of Rotterdam, Netherlands-based Viroclinics provides Cerba with a solid foothold in the complimentary CRO, or contract research organization, sector as the market leader in the specialty virology segment. The deal will add an expected €80 million of revenue and adjusted EBITDA of €33 million, as well as some much needed growth to offset the slowdown in Cerba’s underlying core laboratory services market given the virology CRO sector is growing at double-digit rates.
Cerba has a strong track record of integrating previous acquisitions and successfully realizing synergies, investors noted. Its acquisition of Lifebrain, which the group completed in August last year, is outperforming with revenue set to more than double to €487 million in 2021 from €193 million in 2020, and EBITDA more than tripling to €164 million from €50 million, although most of that is driven by Covid testing.
As a laboratory testing group, Cerba has been a direct beneficiary from the effects of Covid-19, which has fueled a huge jump in demand for its services that will tail off as the pandemic is brought under control, investors noted. Cerba’s expected revenue, excluding Lifebrain, jumped to €1.74 billion in 2021 from €1.35 billion in 2020, while EBITDA vaulted to €605 million from €403 million, with the vast majority of the improvement driven by Covid-19 testing. Revenue could drop as much as 35% to 40% if Covid testing falls away completely, but the underlying group could handle such a drop, one investor suggested.
As a result of the Covid boost, Cerba has taken a conservative approach to its structuring EBITDA for the current transaction, stripping out €258 million EBITDA gained due to Covid, which leaves it with €415 million EBITDA for the core business as a starting point. It added €101 million EBITDA for Lifebrain (including €15 million of synergies) and €136 million EBITDA for the Labexa, Project Milk and Viroclinics businesses, including another €37 million of synergies, to get to its €652 million structuring EBITDA.
The pandemic is far from over and Cerba will likely benefit from continued testing for Covid for some time, boosting free cash flow in the meantime, investors noted.
The new non-fungible €650 million TLC is guided at E+400 bps, 0% floor and a 99.50 OID. While leverage is slightly higher this time round, that looks fair given that the outstanding term loan B pays E+375 bps, investors agreed.
The new loan is rated B/B2. Commitments are due on Monday, Feb. 14, at 12 p.m. GMT.
– Robert Schach, Beatrice Mavroleon
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