UDG targets bigger M&A as profits keep rising
UDG Healthcare chief executive Brendan McAtamney said the Dublin-based company remains on the hunt for "larger-scale" acquisitions but conceded a transformational deal looks unlikely given the fragmentation afflicting its key markets.
Speaking to the Irish Independent after UDG posted revenue growth of 8pc to $578.9m (€518m) for its 2017 interim results, Mr McAtamney said identifying or "sourcing" potential targets, rather than competition in the sector, represented the greatest challenge to M&A.
He argued UDG's "string-of-pearls approach has stood us in good stead so far", and pointed out the company has completed 14 deals and deployed $500m since 2012.
However the London-listed provider of outsourced services to drug companies, formerly known as United Drug, faces a difficult path ahead in its attempt to achieve scale.
Mr McAtamney argued that two recent mega mergers - the multi-billion dollar unions between Quintiles and IMS Health and more recently INC and inVentiv - dramatically reduced the number of potential targets in one segment while its communications business faces a "highly fragmented" market.
UDG now derives the bulk of its earnings from its Ashfield arm following the acquisition in October of STEM Marketing.
A better-than-anticipated performance from the business, acquired for €94m, helped lift diluted earnings per share (EPS) by 19pc - 29pc on a constant currency basis. But it was UDG's 2pc upward revision to its full-year earnings guidance that sent the company's shares soaring by over 6pc before the momentum petered out and the stock closed at £7.93 - an increase of 3.56pc.
UDG had initially forecast an EPS increase of 13-16pc on 2016's numbers but altered that to 15-18pc yesterday.
Last year's sale of some of UDG's Irish distribution businesses dragged total group EPS down 21pc, however. The disposal marked the end of a long-planned strategic shift, re-orientating UDG into three main divisions; Ashfield, packaging and serialisation company Sharp and Aquilant, a sales and marketing services business to the medtech industry. Mr McAtamney re-iterated that UDG's M&A firepower still stands at $600m and said the company should hit its average acquisition rate of 2 to 3 acquisitions per year after hoovering up a German contract sales organisation for $14.4m.