Private equity dives into British pharmaceutical company in £703.1m deal: Ergomed founder gets £120m windfall

Private equity has attacked another UK firm in a deal that values ​​its founder’s stake at over £120 million.

Buying giant Permira has agreed to acquire pharmaceutical services group Ergomed for £703.1 million, putting it on course to become the latest company to exit the London stock market.

The offer of 1350p per share caused the shares listed on the AIM to rise 28.1 per cent, or 296p, to 1348p.

The price tag values ​​the nearly 18 percent stake of Ergomed founder and executive chairman Miroslav Reljanovic at £123 million.

But while a deal would result in a windfall for the neurologist, it would be seen as yet another blow to the stock market amid a string of acquisitions.

Companies such as Morrisons, Ultra Electronics and G4S are among the many London-listed companies that have been purchased in recent years.

Interest in British companies surged during the coronavirus crisis as bidders sought to capitalize on the low price tags and weak pound in a wave of ‘pandemic looting’.

This pattern has lingered in the post-pandemic world, as a slew of ‘opportunistic’ investors flock to London’s low prices – fueling concerns that British companies are being snapped up cheaply.

Ergomed is just the latest UK healthcare company to be targeted this year, following veterinary drug maker Dechra’s £4.5bn deal with EQT in June and Archimed’s acquisition of life sciences software company Instem for £230m last week.

Max Herrmann, an analyst at Stifel Healthcare, said: “This is yet another example of the UK market proving to be a rich environment for private equity to make acquisitions, highlighting that the market is still significantly undervalued.”

Reljanovic, a Croatian clinical researcher, founded Ergomed in Zagreb in 1997 and oversaw the IPO of AIM for 160 pence per share – worth £46 million – nearly a decade ago.

The company, which now has 1,400 employees in 100 countries, manages clinical trials for major pharmaceutical companies. London-based Permira focuses on investments in technology, consumer, healthcare and services.

Reljanovic, 64, said: ‘Private ownership through funds advised by Permira, a highly experienced healthcare investor with a track record of building successful UK global businesses, will enable us to build on the foundations that we laid. It also brings opportunities to access their operational expertise, global network and capital.”

Danni Hewson, analyst at AJ Bell, said: “Pharma is niche, specialist and expensive. Private equity firms like Permira are already in the game and have a wealth of knowledge and compatible infrastructure that makes investing an easy and lucrative decision.

“For the London markets, the current game of private equity bargain-hunting has left some big holes in an industry that is seen as one of the big hopes for the future of UK plc.”

But Sean Conroy, an analyst at Shore Capital, said it was an “attractive opportunity to lock in returns” for Ergomed.

Despite the global slowdown in deals, healthcare has been a bright spot, accounting for 16 percent of total global M&A transactions in the first seven months of this year, according to data from the London Stock Exchange.

The offer of 1350p per share was more than 28 percent higher than the share’s closing price on Friday.

Shareholders have been offered an alternative to the full cash offer where they can take 451p per share in cash plus unlisted shares in the company.

Ergomed’s board said the offer was “fair and reasonable” and recommended that shareholders support the deal.

John Dawson, the senior independent director of the board of Ergomed, said: ‘The offer represents a very attractive valuation. The acquisition also honestly reflects the exceptional quality of the Ergomed company, its people and its future prospects.”