Huntsworth/private equity: pharma PR discovers growth formula
New, less risk-averse owner expected to pursue acquisitions in healthcare marketing
Ever asked a medical researcher what they do for a living and zoned out during the reply? Huntsworth aims to fill the communications gap between big pharma and the public. Clayton, Dubilier & Rice values the specialisation at £515m, judging by an offer for the UK PR group that includes net debt.
The bid from the US buyout group values Huntsworth at almost 14 times estimated earnings. That is well above a rating of less than 10 times that shares have at traded at in recent years. The stock has been caught up in a market rout of big advertising groups such as WPP and Publicis. Huntsworth shares soared by more than half on Tuesday.
The deal, at a 46 per cent premium to the three-month average, is a relief for investors and chief executive Paul Taaffe. Former boss and David Cameron confidante Peter Gummer stepped down in 2014 amid steep losses. Mr Taaffe has overseen a turnround, tilting the group towards healthcare. The sector now accounts for 85 per cent of profits.
Competition in US healthcare means drugmakers spend about $30bn a year on marketing. Ageing populations are fuelling demand for new treatments. Huntsworth eyes becoming a one-stop marketing shop for pharmaceuticals communications. That would fuel growth in revenues from $340m at present.
CD&R likely spies an opportunity for Huntsworth to grow through acquisitions in healthcare marketing. This is a fragmented industry comprised mainly of small boutiques.
The private equity group will tolerate much higher net debt than public market investors. They grumbled when a string of acquisitions took the total close to two times trailing ebitda in March last year, forcing Huntsworth to pull in its horns.
On the stock market, piecemeal acquisitions of marketing businesses are almost as unpopular as high debt. WPP, the best-known exponent, is partly unwinding its empire. Huntsworth was also paying the penalty that comes with being a specialist business with few obvious comparatives. Long funds are as bemused by esoteric mission statements as Joe Public is by scientists’ job descriptions. Huntsworth should be better off under its new, less risk-averse owners.