Silverfleet Capital

Phadia

Business overview

Phadia is the global leading in-vitro allergy diagnostics company, specialising in the development, manufacture and marketing of complete blood systems to support the clinical diagnosis and monitoring of allergy and auto-immune diseases.

Headquartered in Uppsala, Sweden, Phadia has international operations in nineteen locations, supplying over 3,000 laboratories in sixty countries.

Investment rationale

Phadia was a global leader in its niche of allergy diagnostics but within the larger Pfizer group it had demonstrated relatively low growth historically and was not a clear strategic fit with other parts of the group.

Silverfleet Capital has deep sector knowledge in healthcare and specific experience of investing in the diagnostic sub-sector, having owned Oxoid, a supplier to microbiology diagnostic labs. In 2004, we were working with an industry adviser, Iain Ross, who had previously been CEO of Allergy Therapeutics and were convinced that the field of allergy and allergy diagnostics would continue to grow. In particular we believed that we could support Phadia in its ambition to take in vitro allergy diagnostics into the USA, where traditionally allergy testing has been conducted using “skin prick” tests only.

In addition to the market opportunity, in Phadia we saw that there was an opportunity to improve the operational efficiency of the business and reduce costs significantly as a stand-alone entity. The company had also substantially completed a major capital expenditure programme, investing in a next generation of diagnostic equipment to install at its clients’ laboratories; and that with increased cost control and good working capital management, Phadia was set to be extremely cash generative for the next few years.

Value creation

The acquisition itself was a highly complex carve-out from the Pfizer group, involving nineteen simultaneous asset purchases and regulatory filings; however we are very experienced at such transactions.

We helped to build the incumbent management team with a number of additional executive and non-executive appointments to help drive efficiencies and support international growth. With this deeper management resource, the cost efficiency programme was able to be implemented swiftly and resulted in an immediate and substantial profit uplift.

Soon after our investment we invested in a pilot programme in the USA, recruiting sales representatives and demonstrating that the US market was ready for in vitro testing. The business also continued to invest in research and development of a “doctor’s office” allergy test, which obtained FDA approval shortly after our exit.

In 2005 we supported management’s buy and build ambitions, with the acquisition of a key supplier of rare allergens to Phadia in a €44 million deal, which gave the business security of supply and also captured increased margins.

Outcome

Due to Phadia’s strong cash generation, we were able to refinance the business in September 2005, returning 105% of cost to our investors. Subsequently in 2006, with the investment thesis proven, we initiated a dual-track sale process with an auction to trade and private equity purchasers being run alongside a potential flotation of the company.

In January 2007 we completed the sale of the business to Cinven for €1.3 billion resulting in a return of 4.8x cost and a 95% IRR. The deal was awarded Large Deal of the Year 2007 by the BVCA.