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Ergomed gains as it expands its US footprint in earnings enhancing deal worth up to US$25mln


Ergomed PLC (LON:ERGO) shares rose on Monday after the firm revealed it has acquired MedSource, a US-based specialist oncology and rare disease contract research specialist, in a deal worth up to US$25mln.

The transaction, which sees the UK group expand its presence in the strategically important US market, will be immediately earnings enhancing.

Practically, it adds 20 new clients and a US$41mln order book.

MedSource’s revenues last year were US$19.3mln, while its underlying earnings (EBITDA) were US$1.3mln.

The company is paying an immediate US$16.2mln in cash and US$1.8mln in paper, followed by up to US$7mln (payable 90% in cash) dependent on 2021 results.

Ergomed chairman, Dr Miroslav Reljanovic said the addition of MedSource builds on the successful acquisition and integration of Ashfield Pharmacovigilance, now PrimeVigilance USA, earlier this year.

“We look forward to developing the potential of this new business to offer truly global clinical research services to our international customer base,” he added in a statement.

“We are excited to welcome the MedSource team to Ergomed and are eager to work alongside our new colleagues to leverage our combined expertise in complex therapeutic areas for the benefit of our clients and patients worldwide.

“Looking ahead to 2021 we expect to see continued momentum across the business as we look to increase our footprint in key geographies, and firmly establish Ergomed as a leading global provider of specialist services to the pharmaceutical industry.”

Brokers upbeat on deal

In a note commenting on the acquisition, analysts at Shore Capital said: “We view this as a sensible acquisition given the complementary expertise in rare disease oncology, which are two of the fastest-growing subsegments of the pharmaceutical market.

“In addition, the acquisition will increase Ergomed’s footprint in the strategically important US market and also brings an enlarged order book ($41m, compared with Ergomed’s current order book of GBP151.4m).”

Meanwhile, analysts at fellow City broker Peel Hunt said: “Today’s announcement is fully aligned with the strategic attractions set out in our recent initiation report, and suggests our bull case, in which we value Ergomed at 1,400p, is starting to play out.”

They added: “The deal multiples are favourable vs Ergomed’s trading multiples, even on a trailing (2019) basis and before synergies, and the acquisition is immediately earnings enhancing.”

The Peel Hunt analysts repeated a ‘buy’ rating and 1,100p price target on Ergomed shares, which in morning trade on Monday were 3.5% higher at 1,000p.

— Adds broker comment, share price —

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