This appeared last week:
Healthy interest as investors seek ’infrastructure-like’ options
6:57AM January 3, 2022
The rise of health businesses as secure “infrastructure-like” bets during the pandemic is set to drive M&A activity in the year ahead, following several multibillion-dollar deals in 2021, according to industry insiders.
Icon co-founder and CEO Mark Middleton said the pandemic had exposed high-quality leadership at small businesses that “have been built from the ground up with a view of one day selling into a larger organisation”.
“You’ll continue to see companies pay strong valuations because they are really high quality and that’s what we are looking for – high-quality businesses with high-quality leadership.”
Mergers and acquisitions activity in the sector ramped up in December with CSL’s $16.4bn pursuit of Sweden’s Vifor Pharma and private equity firm BGH Capital’s $607m takeover of fertility services provider Virtus Health.
ASX-listed medical business Healius has also been active, splurging $301.3m on bioanalytical laboratory business Agilex Biolabs, but the $45m sale of its Adora Fertility business to Virtus was called off by the buyer after competition regulator ACCC raised concerns.
Private entities have also had a busy year, with the November sale of the country’s largest cancer care provider Icon to EQT for more than $2.4bn.
The closing weeks of the year have also seen a series of deals and supporting transactions being completed by medical equipment supplier Trajan Scientific and medical and hospital software systems providers Alcidion.
Health was a strong contributor to Australia’s record $US391.bn worth of M&A transactions in 2021, over at least 2275 M&A-related transactions.
More deals would come in 2022, Icon’s Mr Middleton said.
“I think health is seen as investment that is resilient, essential and more and more being viewed by investors as infrastructure-like,” he said.
“Healthcare is really is going through a very strong period in terms of recognition and reputation as a very sound investment.”
While the pandemic has thrown up strategic growth opportunities for bigger groups, smaller organisations that have found it difficult to navigate pandemic challenges also stand to benefit.
“I speak from experience having sold my own business into the foundation of Icon,” Mr Middleton said.
“There is a lot to like for smaller healthcare organisations in being part of something bigger and also seeing the benefits of economies of scale and to accelerate growth.”
Mr Middleton said it would be business as usual under new owner EQT as it progressed plans for international expansion, including growing its fast-expanding China footprint.
“EQT had an eye on the business for some time.
“The capability that had delivered China I think is incredibly attractive to many investors,” he said.
On other deals, Mr Middleton said he had “really been watching Healius closely”.
“Healius’s Agilex buy diversifies their revenue stream, but it is also complementary to what they do and also gives them a global platform.
“I like smart strategic acquisitions that bring value to existing business.”
Also keeping an eye on smart buys is Trajan Scientific and Medical founder and CEO Stephen Tomisich, who skipped his Christmas break to acquire California-based blood micro sampling device Neoteryx in a cash-scrip deal worth $25m and North Carolina laboratory systems specialist LEAP Pal for $US7.7m ($10.6m).
Trajan – backed by former Australian rugby union captain John Eales, who is also a director of the business, and AustralianSuper – provides precision syringes for pathology machines and other devices for micro sample collection and pathology products.
Shares in the $507m group ended the year at $3.90 each, up 97 per cent over 12 months. “If I stand back and try and understand what’s happening, it seems to me that what’s played out with Covid in many ways is the opposite to what people expected,” Mr Tomisich said.
“A little bit unlike historical economic events, I think a lot of companies, including ourselves, we came into it with strong balance sheet cash reserves with lots of capacity in terms of the ability to raise debt and … it’s actually been far more efficient and productive (to do it remotely).
He said the Helius-Agilex deal resonated with the group.
“We have established product line servicing, established healthcare customers, like Healius in traditional pathology.
“But we also have this vision of servicing the analytical measurements that are making their way into healthcare, and that’s what Agilex is all about.
“So to me, it’s an example of our vision playing out where you start to see measurement technologies embedded in healthcare companies, enabling this next era of healthcare, which increasingly becomes about data.”
Trajan said it had a “funnel of opportunities” in the new year but its M&A strategy was “to bite off what we can chew and what we can digest”.
Also building for a new future in patient care is hospital software solutions group Alcidion.
Alcidion, which has a market capitalisation of $336m and has AustralianSuper on its share register, bought UK patient administration services company Silverlake in December, supported by a $55m capital raising. It follows Alcidion’s $9.6m purchase of the British ExtraMed business in April, also supported by a $17.9m capital raising.
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The fact that we are seeing more M&A activity as well as more capital raisings really speaks to the health of the overall digital health sector.
The canny investor may be looking closely at what the Digital Health CRC and ANDHealth are doing to see if they can find some early stage and very profitable investing opportunities. An investment a year or two ago would have been very profitable for example - and there is likely more to come (not investment advice(.
David.
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