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UDG Healthcare Plc

UDG Healthcare plc Acquisition of two businesses & Interim results

UDG Healthcare plc (LON:UDG), a leading international healthcare services provider, today announced two acquisitions in its Ashfield Communications and Advisory business. Putnam Associates (“Putnam”), a US-based strategic management healthcare consultancy, is being acquired for a total consideration of up to $88.6 million, and Incisive Health, a UK-based healthcare policy and communications consultancy, is being acquired for a total consideration of up to £13.6 million ($17.7 million).

Putnam

Based in the US, Putnam is a specialist consultancy focused on product commercialisation strategy, exclusively for the life sciences industry. Founded in 1988, Putnam has grown to become a respected advisory brand for biopharmaceutical companies, and attracts top class talent from several of the leading US universities. With 120 employees across offices in Boston and San Francisco, Putnam offers consultancy services across the product life cycle with particular strengths in product commercialisation, pricing, reimbursement and market access strategy. Over the past 10 years, Putnam has advised on the commercialisation of several products that have achieved blockbuster sales status in the US.

Putnam adds significant capabilities and scale to Ashfield’s existing advisory pillar in the US, as well as delivering a step change in Ashfield’s capabilities in pricing, reimbursement and market access. Putnam also complements Ashfield’s existing advisory offering, including STEM, Vynamic and SmartAnalyst, which were acquired between 2016 and 2018.

Putnam is being acquired for a total consideration of up to $88.6 million to be satisfied in cash, with $60 million paid upfront, in addition to an earn-out of up to $20.1 million over three years, and a further five year earn-out of up to an additional $8.5 million. For the year ending 31 December 2018, Putnam had gross assets of $20.5 million, with an adjusted* operating profit of approximately $8 million.

*Operating profit from the statutory accounts adjusted to reflect transition from a partnership model.

Incisive Health

Incisive Health is a UK-based healthcare communications consultancy, which specialises in healthcare policy, public affairs and communication services. Across its head office in London and an office in Brussels, the consultancy employs 36 people and provides a suite of consultancy and communications services including clinical advocacy, corporate and digital communications, direct payer engagement, public affairs, stakeholder campaigning, strategic and policy development and training programmes. Incisive Health has a diversified client base of predominately pharmaceutical and biotech companies.

Incisive Health significantly strengthens Ashfield Communications’ capabilities in the UK and mainland Europe, specifically in dedicated policy and market access communications.

Incisive Health is being acquired for a total consideration of up to £13.6 million ($17.7 million). This includes initial consideration of £8 million ($10.4 million), with an earn-out of up to £5.6 million ($7.3 million) payable over the next three years, based on the achievement of agreed profit targets.

Both transactions will be financed from existing cash and debt facilities and are expected to deliver a return on capital employed in excess of the Group’s target of 15% within three years.

Commenting on the announcement, Brendan McAtamney, CEO of UDG Healthcare plc, said:

“We are pleased to announce the acquisitions of Putnam Associates and Incisive Health, which further enhance our capabilities in Ashfield Communications and Advisory. Putnam strengthens our growing advisory pillar in the US, adding significant expertise in product commercialisation, pricing, reimbursement and market access strategy. Incisive Health adds specialist capability in the growing area of public health advocacy, supporting clients to secure market access for their brands, in addition to wider communications services.

Both transactions are a good strategic and cultural fit, meet our target financial hurdle rates and further expand our current capabilities.”

Interim Results

UDG Healthcare plc, a leading international healthcare services provider, announces its results for the six months to 31 March 2019, in which the Group delivered a solid first half performance, with full year guidance increased to reflect latest acquisitions.

Results highlights (on an IAS 18 basis2)

· Adjusted diluted earnings per share (EPS) increased by 5% (7% on a constant currency basis).

· Net underlying* revenue growth of 6%. Total net revenue declined 4% (1% on constant currency basis).

· Adjusted underlying* operating profit growth of 3%. Total adjusted operating profit increased by 1% (3% on a constant currency basis), reflecting continued growth in Ashfield and Sharp, offset by the divestment of Aquilant in August 2018.

o Ashfield’s operating profit increased by 3% (6% on a constant currency basis) driven by the benefit of acquisitions completed in FY18.

o Sharp’s operating profit increased by 12% (12% on a constant currency basis) driven by the continued strong performance of Sharp US.

· Adjusted net operating margin increased from 11.8% to 12.5%.

· Strong cash flow performance with a positive working capital inflow.

· Net debt to EBITDA of 0.33x with $56.8 million net debt at 31 March 2019.

· In May 2019, completed the acquisitions of Putnam Associates (“Putnam”), a US-based strategic management healthcare consultancy, and Incisive Health, a UK-based healthcare policy and communications consultancy, for a combined consideration of up to $106 million (including contingent consideration of up to $36 million).

· Interim dividend per share increased 5% to 4.46 $ cent per share.

· Reflecting the acquisitions, full year guidance increased to adjusted EPS growth on a constant currency basis of between 5% and 7%.

*underlying growth adjusts for the impact of currency translation movements and any acquisition or disposal activity, including Aquilant

Financial Results – six months to 31 March 2019

IFRS based   31 March 2019$’m31 March 2018$’m Increase/(decrease)% 
Revenue  656.6675.3(3) 
Operating profit  34.12.4n/m 
Profit before tax  30.31.7n/m 
Diluted earnings per share (“EPS”) (cent)  9.270.44n/m 
Dividend per share (cent)  4.464.255 
    31 March 201931 March 201830 September 2018 
Net debt ($’m)  56.846.660.8 
Net debt/annualised EBITDA (times)  0.330.280.34 
       
Alternative performance measures1 (IAS 18)      31 March 2019$’m31 March 2018$’mIncrease/(decrease)% Constant currency increase/(decrease)%
Revenue  658.8675.3(2)
Net Revenue  548.3568.7(4)(1)
Adjusted operating profit  68.367.413
Adjusted profit before tax  64.563.224
Adjusted diluted earnings per share (“EPS”) (cent)  21.2120.1957

Chief Executive’s comment

Commenting on the performance, Chief Executive Officer, Brendan McAtamney said:

“UDG Healthcare delivered good EPS growth during the first half of FY19. Today, we have also announced the acquisitions of two businesses, Putnam, a US-based strategic management healthcare consultancy, and Incisive Health, a UK-based healthcare policy and communications consultancy. Both businesses are aligned with our strategy to expand into higher growth and higher margin areas, complementary to our existing service offering. Reflecting the benefit of these acquisitions and continued trading performance in line with expectations, we have increased our full year guidance to adjusted EPS growth on a constant currency basis to between 5% and 7%.”

Group development and outlook

Corporate Development

In May 2019, we completed the acquisitions of Putnam, a US-based strategic management healthcare consultancy, and Incisive Health, a UK-based healthcare policy and communications consultancy, for a combined consideration of up to $106 million (including contingent consideration of up to $36 million).

Based in the US, Putnam is a specialist consultancy focused on product commercialisation strategy, exclusively for the life sciences industry. Founded in 1988, Putnam has grown to become a respected advisory brand for biopharmaceutical companies, and attracts top class talent from several of the leading US universities. With 120 employees across offices in Boston and San Francisco, Putnam primarily offers consultancy services across the product life cycle with particular strengths in product commercialisation, pricing, reimbursement and market access strategy. Over the past 10 years, Putnam has advised on the commercialisation of several products that have achieved blockbuster sales status in the US.

Putnam is being acquired for a total consideration of up to $88.6 million to be satisfied in cash, with $60 million paid upfront, in addition to an earn-out of up to $20.1 million over three years, and a further five year earn-out of up to an additional $8.5 million. For the year ending 31 December 2018, Putnam had gross assets of $20.5 million, with an adjusted operating profit of approximately $8 million.

Incisive Health is a UK-based healthcare communications consultancy, which specialises in healthcare policy, public affairs and communication services. Across its head office in London and an office in Brussels, the consultancy employs 36 people and provides a suite of consultancy and communications services including clinical advocacy, corporate and digital communications, direct payer engagement, public affairs, stakeholder campaigning, strategic and policy development and training programmes. Incisive Health has a diversified client base of predominately pharmaceutical and biotech companies.

Incisive Health is being acquired for a total consideration of up to £13.6 million ($17.7 million). This includes initial consideration of £8 million ($10.4 million), with an earn-out of up to £5.6 million ($7.3 million) payable over the next three years, based on the achievement of agreed profit targets.

The Group’s net debt was $56.8 million (0.33x net debt to EBITDA) at 31 March 2019, leaving it well placed to fund the continued inorganic development of its two global growth platforms, Ashfield and Sharp.

Exceptional Item

During the first half, the Group incurred an exceptional charge of $15.2 million pre-tax related to two legal matters. As disclosed in the Group’s 2018 Annual Report, the Group received a claim from McKesson arising from its purchase of United Drug from the Group in 2016. A full and final settlement of this claim (without admission by any party) was concluded in April 2019, resulting in an exceptional charge (including legal costs incurred) of $14.4 million. This compares to the total consideration of $464 million received from the original transaction. Additionally, a charge of $0.8 million relating to legal costs was incurred in defending an Ashfield trademark. For further information on these items, please refer to page 20.

Outlook

Reflecting the acquisitions and continued trading performance in line with expectations, the Group has increased its full year guidance for constant currency adjusted diluted earnings per share (EPS) growth, under IAS 18, for the year to 30 September 2019 to between 5% and 7%. The Group expects to continue its 30+ year history of dividend growth in FY19. The Board has declared an interim dividend of 4.46 $ cent per share, a 5% increase on the 2018 interim dividend.

Preliminary Results

The Group will issue preliminary results for the year to 30 September 2019 on Tuesday, 26 November 2019.