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Alliance Pharma is continuing with its buy-and-build strategy, having evolved through 35 acquisitions over a period of 20 years into a profitable, cash generative, specialty pharma business. The company has a mix of international growth brands – notably Kelo-cote and MacuShield – and a bedrock of solid local low-growth brands. APH is adding new products to each of these areas with the recent acquisitions of Ametop (bedrock) and Vamousse (international growth), both for cash from the company’s existing Revolving Credit Facility, and, given the good margins, these are expected to be earnings accretive by the end of the first year of ownership.

  • Strategy: Since inauguration, APH has adopted a buy-and-build model, with 35 deals over 20 years assembling a portfolio of >90 products and establishing a strong track record. It is accelerating growth through investing in multi-market brands, with infrastructure supported by its passive products.
  • Vamousse: Acquisition of Vamousse, for treatment of head lice, from Tyratech Inc (TYR.L) has added a third international growth brand for a total consideration of up to $17.5m/£13.0m – $13.0m initial; $4.5m deferred. Annual sales of $6.6m are mostly from the US, expanding APH’s presence in this key territory.
  • Ametop: Completed acquisition from Smith & Nephew, for $7.8m/£5.5m, of an established gel formulation anaesthetic for numbing skin prior to venopuncture or insertion of a cannula. Sales of $2.8m are mostly in the UK and RoI, adding to the group’s bedrock of products, with some element of international expansion.
  • Financing: The acquisitions are being financed in cash from the group’s existing £35m Revolving Credit Facility. APH agreed an increase to its EBITDA covenants from 2.5x to 3.0x for the life of the facility (end 2020). Net debt/ EBITDA is likely to be 2.5x at 31 December 2017 and should revert to ca.2.0x for fiscal 2018.
  • Investment summary: These acquisitions will offset Diclectin, which has not been approved by the regulator, and return APH to +8% CAGR in both sales and EPS over the next three years. APH is expected to continue with its progressive dividend policy. Shares are trading on a 2018E P/E of 14.1x and carry a prospective dividend yield of 2.2%, covered 3.3x.
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