DPS builds global reputation for quality
Ambitious engineering and construction group with big pharma clients expands abroad with M&A deals, writes Fearghal O'Connor
Chief operating officer, DPS Group
Married, three children, Rory (7), Bobby (4) and Eve (4)
BE, UCD; C.Eng; MIEE; MBA, INSEAD, France
Fitness, golf, Russian literature, European history
War and Peace, Leo Tolstoy
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Irish firm DPS Group has quietly but steadily transformed itself from a local operator into a go-to engineering and construction player for the global pharma and biotech sectors. That transformation has continued apace in recent weeks, with two key deals in Sweden and Belgium. Next up for the ambitious Dublin and Cork-based company could be a US acquisition - possibly on the west coast - further expanding its reach in a country in which it has already built a well-regarded business in key pharmaceutical manufacturing centres.
DPS, which was established more than 40 years ago and bought out by its management 20 years ago, has worked with 13 of the top 15 pharma companies in the world, says its chief operating officer Brian Donohoe. He sees the firm's success as very much part of a wave of growing Irish success on the continent in the wider construction industry.
"Back in the 1950s you had a wave of Irish construction workers who went to work in the UK but in the past 10 years, perhaps initially because there was no work here, you have had companies themselves that have gone out of Ireland and built a really strong reputation. And this is at a different level. It's not building roads. It is high-end stuff, building data centres and pharma plants."
For its part, DPS focuses on engineering, consulting and project management for the pharmaceutical, biotech and semiconductor industries.
"We are focused on complex high-end process engineering sectors. We are now a global company, but we are an Irish success story because we have acquired a lot of our technical ability through working with clients in Ireland and used that to expand in Europe and the US."
That expansion has seen DPS grow staff numbers in the last five years from 700 people to 1,400 people. Donohoe says it is now eyeing further expansion in Europe and the US.
Key to that ambitious plan is the acquisition, for an undisclosed amount, that the company has just completed last week of Belgian specialised engineering group F4PE, which stands for "focus for pharmaceutical engineering" and which has an annual turnover of €5m.
DPS already has a small team in Belgium and it will be amalgamated with the F4PE team, giving it a combined team of about 70 people.
"That helps us to deliver a local presence for our clients in Belgium, but we back this up by using our centres of excellence in Dublin and Cork.
"It is all about getting that mix of global technical expertise and local presence. The world is global, but clients want a local presence and that is what we are doing with this acquisition."
Belgium is a particularly interesting market for DPS, he says: "It is not just chocolates and beer. There is also a very large and well-established pharmaceutical sector there. It was our second location in mainland Europe, having been in the Netherlands for 20 years."
But that is just part of the overall European expansion plan, with operations also in Switzerland, and Germany. A deal signed in May with AstraZeneca will see it provide engineering, procurement, construction management and validation services for the pharma giant in Sweden. DPS will have a team of between 60 and 80 people based in Sweden within 12 months.
The Belgian acquisition was planned two or three years ago as part of a five-year plan that lays out expansion through a mixture of acquisition and organic growth, according to Donohoe.
The next step of that plan may well take place in the US, he says. DPS already has operations in several of America's key pharma hubs: Boston for biotech and the Philadelphia/New York region for more traditional pharma.
It is now looking at several different potential acquisitions and new offices in other areas, for example on the west coast or Chicago.
Since the collapse of British contractor Carillion earlier this year, there have been fears around the robustness of the business models of some main contractors in the wider construction sector.
But Donohoe describes the DPS approach as "conservative" and says it is focused on maintaining a low-debt position. "In general we finance acquisitions out of cash and profits. We're cautious. You could risk the whole company on the wrong acquisition that is too big and we are not prepared to do that. We don't open new offices for the sake of it. We want them to be profitable and so we do these things conservatively and as part of a very clear plan."
In 2011 the company took this approach when it made its first US move with an acquisition in Boston, where biotech is very strong. It followed that deal with a small acquisition in North Carolina, followed by the opening of offices in New York, New Jersey and Arizona.
"The reason we are in the US is partly for diversification reasons, partly to learn new technologies and partly to be able to offer a service to clients across both the US and Europe because a lot of these clients are global clients."
Turnover has risen steadily as the company has expanded. It rose from €144m in 2016 to €160m in 2017 and Donohoe says turnover is expected to rise to €180m this year. Ireland still accounts for 45pc of this but 30pc comes from the US and 25pc from the EU. Profits are also on the rise with profit before tax and dividends rising from €6.4m in 2015 to €7.8m in 2017.
Many of the senior management team were part of the buyout of the company 20 years ago, but Donohoe is an exception to the company's 'grow from within' talent strategy.
He has had a varied career, originally studied engineering in UCD in the 1980s before working for Siemens in Germany for 10 years. He then worked for global consulting and strategy company Booz, where he focused on the engineering, telecoms and logistics sectors in Germany, Austria, France and the US. In 1996 he returned home to work in the private equity industry for six years with Dublin company Allen McGuire before going back to engineering, taking on the role of chief operating officer of the international division of another Irish star in the sector, Mercury Engineering. He went on to become the managing director of its European division before joining DPS in 2015.
"My experience with acquisitions and strategy in private equity has helped me here. Sometimes it's good to be a generalist and sometimes it's good to be a specialist," he says.
And Donohoe has no regrets about returning from the world of finance to engineering and he particularly loves working with pharmaceutical and biotech companies.
"It's a great sector to be involved in because ultimately you are helping people and contributing to society in some way. But it is pressure too. The clients come to us and say 'we have to get this product out'. If the factory is delayed a month it can cost them hundreds of millions in sales."
The pharma sector is, of course, changing fast, not least with the arrival of generic brands of pharmaceuticals to challenge the big players in the market. DPS works for the big-name pharma companies and for the contract manufacturing companies that have changed the industry.
"There is a challenge from generics for the big pharma companies but there is also a challenge on pricing, particularly from the US. Amazon, for example, are moving into the whole distribution and retail end of the business in the US, which puts further pressure on pricing. But the bottom line is that pharma is still a big profitable business.
"People point to the margins that these companies make and say they are too big but the profits are reinvested in new drugs and if they don't make margins they can't make new drugs by investing in research and development and new facilities. We all need these companies to be successful."
From DPS's point of view, a key advantage of working with the sector is that it is relatively stable and not cyclical. New areas in the industry are also leading to new opportunity as biotech developed over the last decade, leading on to advances in areas such as cell and gene therapy.
"Waves of development have come one after the other in the industry and Ireland has a big position in the industry, becoming one of the major manufacturing hubs in the world for the industry. That is where we learned our trade.
"We have helped design the state-of-the-art facilities that have been built here and we are taking that knowledge to design similar ones in Europe and the US."
The key issue that DPS's pharma clients are concerned with, given the challenges in the industry, is the removal of as much cost as possible from a project, he says.
"We do a lot of work on lean design and lean construction. That concept originally came out of the car industry and took a while to get into pharma because maybe they weren't under the same pressures in the past," he says.
While Ireland does have a very strong pharma and biotech sector, Donohoe says there are particular pressures at play for the sector here: pressure on the corporation tax model and for the common tax base, as well as US tax reductions.
"That is probably going to result in a shift of work to the US from Europe and Ireland. But because we are over there, we are somewhat agnostic on all of that. We want to grow in the US so we will take advantage of that as well."
For Donohoe the bottom line if DPS is to continue its success is for it to keep delivering projects for its clients. That, he says, has created very positive word of mouth right across the sectors on which it is focused. "We are very focused on delivery because if we don't deliver for our clients that impacts our reputation," he says. "It's what we keep doing and it works. It's a virtuous circle."
Sunday Indo Business