Cinven Continues a Push Into Healthcare

The Europe-focused firm invested in its third diagnostics company, Labco, in a $1.4B deal.

European private equity firm Cinven—with expertise in a handful of sectors including business and financial services, industrials, consumer, technology, and media and telecommunications—continues building upon its investment thesis in healthcare with an announced agreement to acquire Labco, an operator of medical diagnostic laboratories, from a group of owners for an enterprise value of €1.2B ($1.4B).

“[The company] has very strong growth trends in the market,” explains Alex Leslie, a senior principal at Cinven. “There is a compelling volume trend we are investing into.”

Labco, established in 2003, operates more than 160 routine and specialist laboratories and more than 1,000 collection centers across seven European countries, including France, Spain, and Italy. Employing more than 6,000 people, the company generated pro forma revenues of approximately €650M last year.

The French company conducts clinical tests, delivers results to prescribing doctors and patients, and assists with interpretations of these results though its in-house laboratory medical staff. In fact, the company conducts more than 150M tests annually on roughly 20M patients. Labco also operates a portfolio of outsourcing contracts throughout Europe for services including ambulatory and hospital care.

“This is one of the very few [diagnostics companies] operating on a cross-border basis,” Leslie says.

By conducting business throughout Europe, Labco is able to deliver medical services to a diversified customer base by geography, payer, and business model.

Other attractive factors contributing to Cinven’s investment in Labco include strong market fundamentals; demographic trends such as increased incidences of chronic diseases as a result of an aging population; increased cost benefits; trends toward early detection and prevention of illnesses; and hospital outsourcing of clinical diagnostics. Cinven also liked what it saw in Labco’s leadership in specialist areas including anatomical pathology, genetic testing, and nuclear medicine; the potential for consolidation of a highly fragmented marketplace; and Labco’s strong historic financial performance and stable cash flows.

Plans for the business include a buy-and-build strategy in local markets throughout Europe and in emerging markets of various sizes and geographies, Leslie says. Cinven will continue to support Labco’s current management team, having gotten to know the group well during the last few months.

Labco represents the 12th investment from Cinven’s fifth fund. The transaction, still subject to customary regulatory approvals, is expected to close at the end of July. The firm has offices in Europe, the United Kingdom, Asia, and North America, and has invested in a dozen portfolio companies in the healthcare sector, including successful realizations of European diagnostic company Phadia in 2011, earning 3.4x, and of Sebia in 2014, earning 2.4x.

“This is an industry we know well,” Leslie says.