Davy Research |
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United Drug
(UDG ID)
Pharmexx adds scale and profit potential for a modest cash outlay
30 July 2012
Jack Gorman
| Closing Price: | 214c | Rating: | Outperform | 30/06/09 |
The €28.7m acquisition of Pharmexx marks another milestone in UDG's expansion in global sales and marketing services, first begun with the acquisition of Ashfield UK in 2000. UDG's first task will be to integrate Pharmexx, in particular assessing the viability of loss-making and sub-scale territories. Its ten-plus years of experience in similar UK and US businesses give us confidence that this can be executed successfully, although it will take some time to do so. The next step will be to cross-sell its existing UK/US range of marketing services into the European network. Pharma companies continue to suffer from patent expiry and austerity pricing – UDG will be one of very few companies to offer sales outsourcing on a global basis.
Trading performance for Pharmexx has been very mixed, which appears to be largely due to rapid international expansion. While the business is being integrated, UDG is guiding that the deal will be earnings neutral in year one (year ending September 2013). The current revenue run-rate is €150m. Illustratively, an underlying run-rate of say €130m with 5-7% operating margins would imply EBIT of €7-9m over the medium term. This would add up to 10% to group EBIT. It would imply a potential acquisition multiple of only 3-4x. This is an exciting development for UDG. The deal provides further scale in a sector that the group knows well in the UK and US. It also provides a platform to cross-sell its related marketing activities into what is currently a core CSO business. The next newsflow from UDG is in mid-August (Q3 IMS).
For further detail, see our research note issued July 27th.