Deal in focus: MPVenture sells SDN to 3i-backed Labco

Amy King
23 October 2014

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After an extended holding period, prompted by the impact of the healthcare spending deficit in Campania, MPVenture has sold medical imaging provider SDN to private equity-backed Labco, unquote" has learned

Italian mid-market player MPVenture has completed the sale of SDN, a provider of medical imaging and laboratory diagnostic services based in Naples, to Labco, a medical diagnostics company backed by 3i, TCR Capital, Nixen Partners and CM-CIC Capital Finance.

Founded in 1978 and based in Naples, SDN is a medical imaging and laboratory diagnostics company that specialises in nuclear medicine, placing a heavy emphasis on its high-tech offering. MPVenture acquired a 30% stake in the business in December 2006, via MPVenture Sud 2, a 2007-vintage fund with capital commitments of €50m. MPVenture then syndicated half of the stake with IMI Fondio Chiusi (7.5%) and Centrobanca Sviluppo Impresa (7.5%). Financing to support the deal was provided by MPS Capital Services and Centrobanca, according to unquote" data.

The GP had anticipated a shorter holding period than its eight-year ownership. However, any possibility of early divestment was hampered by the impact of the Campania government's sky-high healthcare spending; a serious deficit – reported to have stood at €773m in 2009 – meant it was unable to finalise receivables payable to SDN, with serious repercussions for the business. Nevertheless, after four years of severe cuts, the region was able to address and rectify the deficit.

Following the resolution of the problem, the vendor appointed EY to find a buyer for the company towards the end of 2013. Following the GP's patient stewardship, the business stood in good stead, reporting revenues of around €48m and an EBITDA margin of 45%.

"We hired EY because of their knowledge of Campania medcare activity, having advised on the financing of medcare spending in the Campania region," says Marco Canale, managing director at MPVenture.

International attraction
A number of parties were approached for the sale of the asset, including financial and strategic buyers. The large part of international investors were understood to have been wary, as a result of fears of both unresolved issues with the regional government and concerns regarding the business environment in Naples. However, a handful of international players did attempt to finalise a deal. Despite the interest from private equity, the GP opted for a trade sale, achieving a 2.4x money multiple via the realisation.

"It made the most sense for the company. SDN adds expertise in nuclear medicine and diagnostic imaging to the technology available to Labco, generating relevant synergies," says Canale. "Labco understood that issues of the past had been resolved, and they liked the quality of the technology. It made sense because they are able to exploit the technology within a larger, European company. It's the best next step."

In 2008, a consortium of investors – led by 3i – backed Labco. 3i invested €140m in the business, with TCR, Natixis Investment Partners and CIC Finance committing €60m. The company also raised €350m senior debt from Natixis and CIC, with a €120m mezzanine commitment from ICG, according to unquote" data.

The business has grown acquisitively across Europe, integrating six regional laboratories in Germany in 2008, and bolting on AescuLabor-Karlsruhe in 2009. In 2008, the group generated pro forma sales of €410m, an increase of 85% compared to 2007. The business remained majority-owned by its laboratory directors.

In 2012, 3i was reported to have appointed Rothschild to explore the sale of Labco, with an exit expected to value the business at around €1bn. Interested parties were reported to include Blackstone and PAI.

However, the sale did not come to fruition and in 2013, Labco issued a €100m high-yield bond to repay the outstanding amounts borrowed under its revolving credit facility (the firm had already raised €500m on the high-yield market in 2011). Proceeds from the latest issue were used to finance the acquisition of SDN.

People
MPVenture – Marco Canale, Domenico Intrieri

Advisers
Vendor – EY (Corporate finance); Studio Legale Bettini Formigaro Pericu (Legal).