In prior postings we have defined an “add-on” as the acquisition of a company by an equity firm that is “added on” or “bolted on” to an existing platform company. In most cases the equity firm will make a number of add-on acquisitions to a platform company. The goal is to grow the initial platform investment into a larger entity and using economies of scale and synergies, enable the growing new entity to expand into new markets, improve profitability and sustain its growth. Ultimately after a number of add-ons the new, larger entity will either be taken public or sold.
Last week I came across a deal that gives you a picture of this in action. It was recently announced in the M&A press that Monitor Clipper Partners (MCP) acquired the assets of Pharmetics Inc., a Quebec-based maker of vitamin, mineral and dietary supplements. It turns out that Pharmetics is a leading OTC and nutrition contract manufacturer specializing in the retail brand market. Pharmetics is dedicated to promoting health and wellness through the development of the highest quality standards of products.
After reviewing the announcement, I was curious why Monitor Clipper Partners had made this specific acquisition. So I did a little research and I found that MCP has a portfolio consisting of 16 companies. Although a number of their portfolio companies are in the medical field, it appears that Monitor is “industry agnostic,” meaning that they invest in companies operating in a number of industries.
One portfolio company in particular got my attention in relation to Pharmetics. After reading more about it, the acquisition of Pharmetics now makes perfect sense. According to the MCP website, CMC Biologics, one of MCP’s portfolio companies, is a contract manufacturing organization (“CMO”) of biopharmaceutical products that provides its customers with a full range of services for both mammalian cell culture and microbial fermentation processes.
CMC Biologics, which is based in Copenhagen, Denmark, serves customers ranging from startups to the largest pharmaceutical and biotech companies worldwide. MCP purchased a controlling interest in CMC in February 2008. Concurrent with MCP’s investment, CMC acquired Bothell, Washington-based ICOS biologics, a CMO formerly owned by Eli Lilly & Co. This acquisition expands the company’s capacity and broadens CMC’s suite of offerings to its customers. In the future, Monitor Capital Partners will look to leverage Monitor Group’s considerable life sciences expertise and biopharmaceutical relationships to support the company’s continued growth.
So the acquisition of Pharmetics provides perfect synergy and an entree into a new market. Pharmetics is a contract manufacturer of OTC and nutritional products. CMC Biologics is a contract manufacturer in a completely different market, biopharmaceuticals. They are both contract manufacturers but they service different markets.
Monitor is typical of the types of middle-market equity firms you see active in the industry. According to their website, they have invested approximately $1.7 billion in 35 companies throughout North America and Europe, partnering with management teams to build successful businesses.
Monitor believes that their value extends “far beyond the investment of capital.” The investment of experience, expertise, relationships, and global resources helps their portfolio companies navigate through their most critical stages of growth to achieve the highest levels of success.
According to their website, Monitor Clipper understands “the strategic, operational, financial and market issues that confront today’s corporate executives based on decades of first-hand experience building businesses. Monitor Clipper helps accelerate the growth of portfolio companies by providing hands-on strategic, operational, analytical and financial support as well as access to a broad array of regional and industry-specific resources.”
As you can see, Monitor Clipper is actively looking for middle-market companies to add on to its current portfolio. They are looking for synergies that they can leverage along with growing and expanding each acquisition via internal consulting services which are designed to improve operations, management, and profitability.
Monitor Clipper is just one example of an active middle-market equity firm. There are scores of others out there operating under the same philosophy of successfully locating middle-market companies that provide synergies to their current holdings. If you own a middle-market company, chances are good that there are a number of equity firms doing the same thing in your industry. As you can see from the Monitor Clipper website, they have invested in a number of industries, some of them quite unique. Don’t assume that equity firms are not interested in your industry. Chances are good that they are.
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