NEWS15 March 2011

Cello buys MedErgy to build up health services business


UK— Research and consulting group Cello is looking to build up its profitable healthcare services business with the acquisition of US communications specialist MedErgy HealthGroup.

Pharmaceutical and health-related research activity operates at a higher margin than other client sector work, generating approximately 42% of the research division’s gross profit, Cello said.

“The acquisition of MedErgy will accelerate the group’s growth strategy, extending its healthcare reach and international capabilities,” according to a statement.

MedErgy delivered $2.3m of pre-tax profits on gross profits of $9m in 2010. Cello is paying $5.5m in cash upfront for the business along with 5.8m in shares – worth $3.2m at the current trading price of 55p-per-share. 88% of the initial consideration goes to MedErgy owner DVC Worldwide, with the remaining 12% going to the management team led by CEO Julia Ralston.

Cello CEO Mark Scott holds a 0.08% interest in DVC Worldwide, but has pledged to donate his proceeds from the sale (estimated to be worth about $6,000 at the current share price) to the Kevin Steeds Lymphoma Fund set up in memory of the Cello founder and chairman, who died of the disease in December 2008.

A further $3.5m will also become payable, split 50/50 between DVC and MedErgy management, should the business hit performance targets by April 2014. The acquisition is being part-funded by a placing of 5.3m new Cello shares.

The deal was announced today alongside Cello’s 2010 results. Revenue for the year was up just 1% to £124.96m, gross profit was almost flat at £60.3m, while operating profit was £5.74m and net income was £3.6m – a significant improvement on losses of £4.9m and £6.3m as reported last year.

Research and consulting revenue was flat at £59.9m, while gross profit was up marginally to £36.8m and operating profit was £5.5m against a £1.5m loss a year ago. The Tangible communications business grew revenue 2% to £65.3m. Gross profit was flat at £23.4m while operating profit was £2.1m versus a loss last year of £2m.