Can private equity grow a successful company that has stopped growing?
TPG Capital yesterday announced a deal to buy Immucor (BLUD), a provider of automated instrument-reagent systems to the blood transfusion industry, for nearly $2 billion. The deal represented a 30% premium to where Immucor was trading before the holiday weekend, which is heady for a company that hasn’t shown any real revenue growth over the past year.
In a discussion with company employees yesterday, Immucor CEO Josh Levine said: “It is important to remember that this is only a change in ownership, not a change in direction.”
To me, that means the TPG “value-add” – and the investment thesis – is largely about geographic expansion. Immucor already has a strong presence in the U.S. and Europe, but has virtually nothing in South America or Asia (with the exception of Japan). Given that diagnostics is largely a volume business, the more nations the better. Expect a particular focus on China, given that TPG may actually have more staffers on the ground in that country than in the U.S.
These are the types of investments that private companies are better equipped to make than are public companies, so long as they have the financial flexibility to do so. So it will be incumbent on TPG to not load too much debt into Immucor, despite the temptation to do so (given that the company is currently debt-free with strong cash-flow).
Less debt should equal more long-term growth for Immucor, and more long-term gains for TPG. More debt should equal less risk for TPG and more short-term gains. We’ll revisit once the underlying details are disclosed…