Cinven €1.2bn acquisition of Labco to close by end-July

European private equity firm Cinven expects to close its acquisition of Paris-based Labco from a consortium including 3i Group around the end of July, Cinven partner Stuart McAlpine told Private Equity International.

The firm has signed a sale and purchase agreement with the sellers and is awaiting regulatory approvals for the transaction that has an enterprise value of €1.2 billion ($1.1 billion; £855 million).

The medical diagnostic company is classified by the French government as of “national interest” and as Cinven is a foreign buyer, the deal must be approved by the Ministry of Finance. The deal is also subject to EU anti-trust approval.

Its announcement follows the cancellation in mid-May of a plan for an initial public offering of Labco shares on Euronext Paris. The company cited market volatility as the reason.

McAlpine said Cinven had been in dialogue with the company since 2014, when it heard the company was preparing for an offering. “We have a track record of investing in healthcare and a good understanding of the laboratory space. We have been looking at this space for years,” he said. 

Cinven previously invested in the UK's Phadia, which it exited at 3.4x money in 2011 and France's Sebia, which it exited at 2.4x money in 2014. Both companies are in the medical diagnostics sector. The investments were made through its fourth buyout fund.

McAlpine described the entry value for the Labco transaction as “fair and attractive” at eight times EBITDA.

Financing for the acquisition includes an “innovative” backstop facility that will allow Cinven to provide funds to the sellers while it puts in place a long term capital structure that includes refinancing the company's existing bonds, Cinven senior principal Alex Leslie said.

Labco was established in 2003 and operates a network of laboratories across Europe, including Belgium, France, Italy, Portugal, Spain and the UK. It generated revenues of around €650 million in 2014 and reported EBITDA of €131 million. It has €700 million of senior secured notes due in 2018.

The company will provide a platform for Cinven's future acquisitions in the laboratory sector. “Labco has a track record of bolt on acquisitions and an existing pipeline of opportunities that range in size and geography,” Leslie said. “It's operating in a fragmented market. We are investing behind the company with a buy and build strategy.”

The company will remain Europe-focused although it is also active in Latin America, North Africa and the Middle East, he said.

3i took a minority stake in Labco in 2008 and the company completed more than 130 acquisitions during the investment period, the private equity firm said in a statement. 3i's proceeds from the sale of its stake total €58 million.

The acquisition was made by Cinven's Fifth European Buyout Fund that reached final close at €5.3 billion in June 2013. Labco brings the number of investments made by the fund to 12. 

The firm invested €536 million in Sweden's Coor Service Management Group in 2007. In 2014, it invested NOK 21 billion ($2.7 billion; €2.5 billion; £1.8 billion) in Norway's Visma, which provides business management software and outsourcing services.

“We are in investment mode. We are past half way,” McAlpine said.

Talking generally about Cinven, McAlpine said that following “a good run” of exits in 2014, the firm is aiming to take a Nordic support services business to market before the summer.

If everything proceeds smoothly with Labco, the private equity firm expects to go to market to raise its sixth fund in the next 12 months, he added.