Uniphar advances towards IPO with latest acquisition

On Thursday, Irish pharmacy-related company Uniphar announced the acquisition of family-owned Sisk Healthcare, its biggest such deal in five years.

The terms of the transaction were not disclosed but it is understood to involve €65 million in cash (some of it deferred as part of a two-year earn-out) plus equity (equivalent to a 15 per cent stake in Uniphar).

The equity piece of the transaction is important as Uniphar is hatching plans to float on the stock market, most likely in Dublin and London, a move that could provide a windfall over time to the Sisk owners who will soon own a significant slice of Uniphar.

The deal is subject to the approval of the Competition and Consumer Protection Commission and would be Uniphar’s fourth acquisition in the past 12 months.

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In April 2017, it acquired the UK-based multichannel account management provider Outico, followed by London-based healthcare insights specialist Clinical Cube in August 2017. Earlier this year, it purchased specialist medical devices distributor Macromed.

In all, Uniphar has spent more than €150 million on seven acquisitions since 2012 as it reshaped its business model, and expanded its footprint geographically. It is part of a broader plan by Uniphar, led by non-executive chairman Maurice Pratt and chief executive Ger Rabbette, to create a pan-European provider of distribution and specialist services to the pharmacy and wider healthcare sectors.

Uniphar's ultimate ambition is to go public, with Pratt, a veteran of the corporate world – notably as head of Tesco in Ireland and C&C – and Rabbette eyeing an initial public offering (IPO) of shares early in 2019, "subject to market conditions".

Advisers have yet to be appointed and the company has not decided if it will seek a listing on a main market, or a secondary one such as the ESM in Dublin or the AIM in London.

Road ahead

A long road remains to be travelled but the rationale of an IPO is to generate the funds required to grow the business into a pan-European player. It already has a presence in Ireland, the UK and the Netherlands.

According to Pratt, the business sees further expansion opportunities in northern Europe. It has two more acquisitions firmly in its sights, although it won’t reveal any names.

"We have a lot to do to deliver over the next 12 months," Rabbette told The Irish Times this week. "An IPO would be a heavy burden for us and we don't want to take away from growing our business [on a day-to-day basis]."

“We have a road map and we’re comfortable with the road map,” says Pratt. “There’s quite a lengthy process around preparing for an IPO, especially as we’re in M&A [mergers and acquisitions] as well.”

An IPO would complete a significant turnaround since 2010, when a series of cuts by the Health Service Executive (HSE) to the prices it was prepared to pay for medicines pushed Uniphar to the brink of collapse.

We have a road map and we're comfortable with the road map. There's quite a lengthy process around preparing for an IPO

Formed in 1994 through the merger of UPC and APD, Uniphar invested heavily in retail in the Celtic Tiger years. That came home to roost after the economic crash in 2008, with the business and its 1,000 shareholders taking a €100 million hit.

Pratt came on board as chairman in 2009 and began the process of overhauling its leadership structures and its corporate governance. Rabbette, who hails from Mayo, joined the following year. He is a former managing director of Movianto and head of Celesio Solutions, and previously held senior roles in the pharma supply chain with Celesio.

At that point, Uniphar was in survival mode and reliant entirely on the wholesale and pre-wholesale distribution of medicines in Ireland. This year, these areas will account for just 40 per cent of its expected €1.5 billion in revenues.

Rabbette set about restructuring the group. Its employee headcount was reduced from 800 to about 300 and its operations were largely consolidated at a modern, highly automated plant in Citywest, Co Dublin.

Value-added activities

Crucially, the company began to pivot away from being a purely wholesale distributor (where the net margin has been reduced to just 1 per cent) to value-added activities providing a range of specialist services to the broad healthcare sectors.

In 2013, it acquired Cahill May Roberts in Ireland, which gave it the scale to compete and absorb the HSE-imposed cuts, prompted by recession and austerity. It moved into higher margin commercial services with two new divisions – commercial and clinical (which includes nurse-led homecare, and managing certain activities for pharma manufacturers on an outsourced basis), and life cycle management (which includes helping manufacturers manage the life cycle of niche products when they are off-patent).

The company also began moving outside Ireland, expanding into Britain in 2015 and into the Benelux region in February of this year.

Uniphar currently has annual revenues of €1.3 billion and 1,500 employees in Ireland, Britain and the Benelux area. It expects to double its ebitda (earnings before interest, tax, depreciation and amortisation) to €40 million this year, driven by its M&A activity and strong organic growth.

The company began moving outside Ireland, expanding into Britain in 2015 and into the Benelux region in February

Rabbette sees the Sisk deal as a “perfect fit” for Uniphar, giving it market leadership in medical devices in Britain and Ireland. He said it would give the company a “strong platform for growth in the provision of outsourced and specialist services to pharmaco-medical manufacturers” and was a key piece of the jigsaw as the company seeks to create a successful pan-European business.

“Our current acquisition strategy seeks businesses with strong management teams and good potential for growth which Uniphar can help to accelerate and realise. Sisk . . . [is] an excellent fit for Uniphar and will work well within our expanding portfolio of standalone companies, all of whom collaborate to deliver integrated outsourced solutions in the healthcare sector in Ireland, the UK and the Benelux [region].”

Leverage metrics

Other building blocks have been put in place. The business recently refinanced with a syndicate of three banks – Bank of Ireland, AIB and Ulster Bank/Royal Bank of Scotland. This has provided it with a credit line of €225 million.

Pratt and Rabbette won’t say how much the company might seek to raise from a listing but the leverage metrics they have pencilled in are 3.5 times pre-IPO, reducing to 1.5 times post a listing. An IPO would also provide a platform for Uniphar shareholders – many of them community pharmacists – to trade their shares. The company is currently an unlisted plc.

Uniphar is “undecided” on how much of the company might initially be floated on the market, according to Pratt. “That’s a key question for advisers,” he says.

At the time of the Cahill May Roberts transaction, the company did an equity raise, which valued the shares at 30 cent apiece. The prospectus at the time forecast that the shares could rise in value to €1 each within four years by executing its growth strategy. The company feels that has been achieved.

Rabbette and Pratt also stand to benefit from the company going public. Rabbette has about five million shares, of which four million were earned via a long-term incentive plan, while Pratt holds 875,000 shares.

Both men strike notes of caution about the future. “We have to make sure that we don’t overpromise and underdeliver,” says Rabbette. “We see huge growth possibilities but we’re still investing heavily.”

Pratt, a marketing man to the bone, notes there are alternative options to an IPO should market conditions dictate that a stock market listing isn’t feasible.

“The key thing is to get market-ready,” he says. “Ultimately, we could be absolutely ready but the market isn’t. If the opportunity comes we’ll take it, but if it’s not right we won’t.

“It’s a shareholder decision. They’ve got to decide if they agree with the management and the board that this is the right strategy to pursue.”

Other options include paying down debt and focusing on its British and Ireland business. “If the market circumstances weren’t right, we could look at raising other sources of capital if we saw opportunities to expand the business on a pan-European basis.”