Alliance Healthcare acquired Spits Alkmaar

Stem op deze deal via de stempagina: https://mena.nl/genomineerden-best-small-cap-deal-2024/

Name of the deal: Alliance Healthcare acquired Spits Alkmaar
Date announced: June 14, 2024
Date closed: July 31, 2024
Published value: € 25 – € 50 million
Buyer(s): Alliance Healthcare / Cencora
Target(s): Spits Alkmaar
Seller: Spits Alkmaar shareholders: 4 individuals

Involved firms and advisors

Involved firms and advisors buy side:
M&A Advisory: BDO Deal Advisory Team
Legal Advisory Corporate/M&A: BDO Legal Advisory

Involved firms and advisors sell side:
Financial Due Diligence: KPMG
Legal Advisory: VB&K
ACM Advisory: Maverick

Pitch

About Alliance Healthcare
Alliance Healthcare is a pharmaceutical wholesaler and offers an international network for healthcare manufacturers, pharmacies, doctors, care centers, and hospitals. We are one of the largest wholesalers of pharmaceutical and self-care products and distributors in Europe, supplying over 115,000 pharmacies, doctors, care centers, and hospitals each year from 300 distribution centers across 11 countries.

About Spits Alkmaar
SPITS specializes in providing automatically packaged medications to pharmacies, hospitals, and healthcare institutions. SPITS Alkmaar BV has 108 Employees. SPITS was founded in 2001 by a group of enterprising pharmacists with the goal of better supporting pharmacies in the distribution of patient-specific medications. SPITS stands for Service Provider Integrated Therapeutical Systems. Innovation is at the core of SPITS, which is why the company is constantly looking for solutions to further align the quality of its services with technological developments in the pharmaceutical market and, of course, with patient needs.

SPITS Alkmaar BV’s estimated annual revenue is currently $21.7M per year.

SPITS Alkmaar BV’s estimated revenue per employee is $201,000

Brief description deal / Deal outline
Alliance Healthcare Netherlands, a leading distributor and wholesaler of pharmaceutical, surgical, medical, and healthcare products throughout Europe in Veghel acquired Spits Alkmaar. Spits Alkmaar, founded by 4 entrepreneurs, is a company with around 150 employees that specializes in manufacturing baxter rolls (pouches with medicines packed specifically to each customers’ needs). With this acquisition, Alliance strengthens its position in a growing and specialized market and Spits Alkmaar management’s expansion drive has become reality.

Spits is a Dutch medication pouch manufacturer, offering medication pouches and related products, with continuous growth driven by a strong market demand and management’s expansion drive. A baxter roll is a roll with pouches that particularly help the elderly with the intake of their medication. The pouches display the name, the medicine along with a description of its appearance, the date, and the time of required intake.

Nowadays, Spits is a collaboration founded by 4 shareholders (4 pharmacies) of whom one has an active role as director of the baxtering organization (Spits Alkmaar). The other shareholders have an active role in other companies outside the Spits Alkmaar organization (among other pharmacies). The Spits brand name was already owned by Alliance Healthcare and operates from three locations that directly supply 400 pharmacies, providing weekly baxter rolls to 170,000 people. In addition to Alkmaar, these are Spits Apeldoorn (fully owned by Alliance Healthcare) and Spits Oosterwolde (privately owned by other shareholders). Alliance Healthcare itself has been owned by American peer Cencora since 2021. Cencora is a listed pharmaceutical solutions organization centered on improving the lives of people and animals everywhere. Management will continue their work, and they will help with the integration of Spits Alkmaar and Spits Apeldoorn.

Deal drivers: Through changing market conditions, partnerships and acquisitions, the company is expected to grow steadily in the upcoming years. Besides that, (operational) synergies can be achieved between the locations in Alkmaar and Apeldoorn.

Aging”: The issuance of medication rolls is increasing, not least due to aging. This involves work in which guidelines are becoming increasingly strict. “It is technically advanced work that requires large investments,” explains a spokesperson for Alliance Healthcare. Specialized companies such as Spits are increasingly taking over the work of pharmacies. The baxter system is intended for patients who are no longer capable of responsibly managing or taking their medication on their own. The baxter rolls ensure that people receive the correct quantities, thus avoiding confusion, especially among people with, for example, mild dementia.

Less waste of medication through proper quantities: Spits Alkmaar is a key player in reducing medication waste. Patients receive exactly the right amounts of medication they need per day. By delivering medication in the right amounts and reducing packaging, medications are handled efficiently and sustainably. This prevents unnecessary medication waste. This is not only better for the environment, but also for the patients themselves. When a patient receives a whole box of medication, there are often left over pills. These often expire, resulting in waste. By receiving the right amount of medication, the chance of incorrect intake is also reduced and possible side effects are prevented.

Besides this, environmentally friendly production is high on the agenda of Spits Alkmaar. The company is actively researching and testing the use of biodegradable materials to use for the pouch. Management aims to have at least 50% of the production using biodegradable materials by 2025.

Additionally, the company focuses on operating in a socially responsible manner, which includes waste separation and paperless work practices. The building is equipped with a heat pump and 720 solar panels, and there are ample charging stations for employees with electric vehicles.

Innovative in healthcare services: Spits is a highly innovative company that supports and relieves hospitals and other (healthcare) institutions that require large amounts of medicine for larges bases of clientele. They ensure that 58,000 patients are helped annually. The healthcare sector needs companies like Spits to address the significant shortage of personnel. The growth that Spits has experienced will become even greater in the future with the arrival of the new shareholder, who will help relieve more hospitals and provide the right medication to more patients.

The use of advanced state-of-the-art machinery and the unique self-developed production process guarantees the quality of the products due to the highly innovative and forward-thinking mindset of the company.

Over the past years, the company has evolved into a specialized, innovative, and professional business in providing its baxter rolls to numerous pharmacies and (healthcare) institutions. The company is ISO 9001-2018 certified and complies with the MDD standard and is ADD ready with cleanrooms (air condition) and its handling of goods.

Why should this deal win the Award for Best Deal Mid-Cap 2024?
Spits started as a front runner of providing baxter rolls in the Netherlands as early as 2002. The 4 shareholders (all of them pharmacists) recognized the need for patient specific packaging of medicine in a world with an aging population and focused on a more durable distribution of medicine. They started with the purchase of a single baxtering machine and although the first years were tough (from outside the shareholders, there was doubt if the invested goodwill would return a profit), slowly, the clientele started to grow. At around the first € 10 million revenue mark, the company had to expand to a new location in 2009. By the mid 2010’s, Spits Alkmaar was providing more than 25,000 patients with medication pouches and by 2020, the company, again, grew too big for the premises and relocated to the current location in Alkmaar, which included a dedicated Clean Room. The company underwent a highly successful transformation in becoming an innovative baxter rolls specialist. This transformation serves as a shining example of a win-win-win scenario. Benefiting the sector (tailor made baxter rolls for hospitals patients, (medical) institutions and pharmacies), employees (higher satisfaction) and shareholders.

Entrepreneurship

• Entrepreneurial and unique shareholders dynamic.
• With the support of the current shareholder and current management, Spits Alkmaar has built an efficient organizational structure headed by an experienced management with extensive knowledge of pharmacy.
• Management will continue their work for a maximum of 2 years, and they will help with the integration of Spits Alkmaar in Spits Apeldoorn.
• The use of advanced state-of-the-art machinery and the unique self-developed production process guarantees the quality of the products due to the highly innovative and forward-thinking mindset of the company.

Robust Financial performance

• Historical revenues with a more than 10-year streak of double digit CAGR in revenues.
• Recurring revenue through long-term contracts and ongoing customer relationships.

Autonomous growth

• Growing number of elderly: the number of people aged 70 and over will grow by 67% up to 2045 compared to 2019.
• A vast majority of the revenue is recurring (by contract or by nature).
• Despite the excellent (financial) performance, there are opportunities to enhance the results through additional automation of the production.

Positive market forecasts

• As the population ages, Spits products could support individuals in maintaining their independence for an extended period.
• To address medicine shortages, which is expected to continue to increase in the future, pharmaceutical authorities and healthcare organizations in the Netherlands work closely with manufacturers, wholesalers, and healthcare providers to monitor and manage the supply of medicines.
• Because of the high-quality standards requirement in the Dutch/European guidelines, most community pharmacies have outsourced dosing production to specialized MDD suppliers as Spits.
• Growth of the internal organization with both automatization and number of employees.

New businesses and trends

• Growth due to innovation such as adding vitamins and supplements in medication pouches.
• Growth due to producing special medication sets for hospitals, such as, antiemetic medications after chemotherapy or pain medication after surgery.
• Growth due to expanding services such as packaging services, administration list services, delivery services B2C, etc.

Growth due to a decrease in the number of medication pouch manufacturers and due to partnerships and acquisitions.

• Increasingly stringent production requirements are being imposed by governments to produce medication pouches. As a result, smaller medication pouch manufacturers are expected to stop producing themselves. Growth will come from their customers, and is expected to be 1,700 additional patients per year.
• Strategic collaborations and/or acquisitions will play a role in the growth of the company as well.

Deal rationale
For Alliance Healthcare, the acquisition of Spits Alkmaar provides a unique opportunity to profit from synergies between the Spits locations in Alkmaar and Apeldoorn.

What is the impact of this deal for the company?
See information provided above.

What is the impact of this deal for the direct stakeholders?
See information provided above.

What is the impact of this deal on society?
Providing patient specific medication through pouches on rolls (baxter rolls) is precisely in line with ESG criteria that in recent years have become crucial for companies to adhere to. The services of Spits Alkmaar lead to less medication waste, less errors in taking the wrong medicine by patients and reduced involvement of nurses having to help patients in taking their medicine, giving these nurses the opportunity to spend more time on other patient related items. The packaging medicines in pouches per intake moment ensures higher medication safety for patients. The acquisition of Spits Alkmaar will not have any consequences for employment. The management of the joint activities will be in the hands of Chris Sindhunata, the current director and co-owner of Spits Alkmaar.

What was most complex about this deal?
From a deal perspective, the sale of Spits Alkmaar to Alliance Healthcare / Cencora was challenging. Besides Alliance Healthcare, a few other strategic investors as well as financial investors (private equity) were invited in the deal process. Non-binding offers were made by both these strategic and financial investors. However, after further inquiries, it turned out that the financial investors could not out-bid the offer of Alliance Healthcare. Although Alliance Healthcare has a strong presence in The Netherlands and from a Cencora point of view (with revenues totaling more than $ 250 billion in 2023), the transaction could have been seen as ‘not significant’ and to be dealt with by the local branch of Alliance Healthcare in the Netherlands. But nothing could be further from the truth: this transaction was seen by Cencora as an important strategic transaction and dealt with by extensive teams from the UK and USA. Naturally, an Anglo-Saxons approach towards transactions was taken. However, the legal advisors of Alliance Healthcare (VB&K in The Netherlands) and seller (BDO Legal the Netherlands) ensured the necessary counterbalance with Dutch acquisition practices. Both the NZA (Dutch Healthcare Authority) and ACM (Dutch Authority for Consumers and Markets) assessed the acquisition after the SPA was signed at the beginning of June 2024.