- BofA hired as sellside advisor
- First-round bids likely due in weeks
PHC Holdings [TYO:6523], a Tokyo-based healthcare company making medical devices including diabetes management systems, is seeking to divest the clinical testing business run by its wholly owned subsidiary LSI Medience, sources familiar with the situation said.
BofA has been retained as the sellside adviser, and an information memorandum (IM) has been dispatched to potential bidders, they noted.
The business, which generates earnings before interest taxes depreciation and amortization (EBITDA) of around JPY 5bn (USD 35.5m), will likely draw much attention from both private equity firms and strategic bidders, according to the sources.
The first-round bids are likely to be collected in the coming weeks, the first and the second source said.
Private equity firms, such as Bain Capital, BPEA EQT, CVC, MBK Partners, Advantage Partners, may look at the asset, the second source said.
Tokyo-based rival companies H.U. Group Holdings [TYO:4544] and BML [TYO:4694] could be interested in the auction, the second and the third source said, adding that there can be an antitrust hurdle for H.U. Group due to their leading market share.
H.U. Group, BML and LSI Medience are the three major players in the clinical testing segment in Japan with an aggregate market share of 60% in 2021, H.U. Group has a 23.2% market share on its own, according to H.U. Group’s presentation material in December 2022.
LSI Medience's clinical test services business generates revenue of around JPY 50bn-JPY 60bn, according to the third source.
The seller is looking to pocket several tens of billions yen from the deal, the first source.
The clinical testing business, a non-core unit for PHC, has grown revenue rapidly thanks to COVID-19 but upside is considered limited as the world reopens post the three-year pandemic, the first and the third source added.
LSI Medience’s clinical testing includes biochemical testing, hematological testing, immunological testing, microbiological testing, genetic testing, pathological and other testing, according to the company’s website.
LSI Medience revenue dropped 7.5% to JPY 95.6bn (USD 676.4m) from JPY 103bn (USD 731m) for the year ended March 2023 (FY22) due to a fall in medical reimbursement for COVID-19 PCR testings by the Japan government, according to PHC’s full year report. The report didn't disclose the clinical testing business's finances.
PHC Holdings has a market capitalization of JPY 187.4bn (USD 1.3bn) and trading at 7.0x EV/FY23 EBITDA estimates, according to Fidessa consensus data compiled by Factset. The company is operating at a net leverage of 4.0 times net debt/EBITDA.
H.U. Group, valued at JPY 153.9bn (USD 1.1bn), is trading at 4.3x FY23 EBITDA estimates while BML, with a JPY 117.2bn (USD 828.2m) market cap, has net cash of JPY 82.4bn (USD 582.5m) and is trading at 1.8x FY23 EBITDA estimates.
In comparison, H.U. Group and BML generate revenue of JPY 260.9bn (USD 1.8bn) and JPY 159.5bn (USD 1.1bn) for the year ended March 2023 respectively. LSI Medience’s clinical testing services includes biochemical testing, hematological testing, immunological testing, microbiological testing, genetic testing, pathological and other testing, according to the company’s website.
PHC Holdings acquired LSI Medience in 2019 from Life Science Institute for an undisclosed sum in 2019, according to Mergermarket data.
LSI Medience generates revenue of JPY 103bn in FY21, according to the company’s website.
KKR is the largest shareholder of PHC Holdings with a 38.3% stake, according to the company’s earnings report.
PHC Holdings was established by KKR as a vehicle to acquire Panasonic Healthcare in August 2013, according to the same report. The company went public in October 2021.
PHC and LSI Medience did not return requests for comments by the time of publication.
KKR and BofA declined to comment.
