OMERS Looks To Sell LifeLabs; CPP Investments Sells Stake in Visma

Last week, Andrew Willis, James Bradshaw and Sean Silcoff of the Globe and Mail reported that OMERS is looking to sell LifeLabs:

One of the country’s largest pension plans has put Canada’s biggest medical testing company, LifeLabs Medical Laboratory Services, up for sale after building the business over 17 years, drawing interest from suitors based in the United States and Canada.

Last year, Ontario Municipal Employees Retirement System (OMERS) hired investment banks to find a new owner for Toronto-based LifeLabs, according to four sources familiar with the sales process. Two of the sources said OMERS picked New York-based Evercore Group LLC to run the process and also brought in a Canadian bank.

OMERS has invested more than $2.5-billion in LifeLabs and two of the sources said the asset manager is asking for a premium valuation on the business, well above the capital OMERS has put into acquisitions.

LifeLabs has drawn multiple bidders, with two health care companies emerging as the leading contenders, three of the sources said.

One is Vaughan, Ont.-based Andlauer Healthcare Group, which is run by founder and chief executive officer Michael Andlauer, who led a group of investors that recently purchased the National Hockey League’s Ottawa Senators. Andlauer Healthcare is a medical logistics business, delivering drugs to pharmacies and hospitals, with a $1.7-billion market capitalization.

The second is Secaucus, N.J.-based Quest Diagnostics Inc., a leading U.S. clinical laboratory company with a US$15.2-billion market capitalization. In recent years, Quest used acquisitions to expand in the U.S. and internationally.

The Globe and Mail is not naming the sources because their employers do not permit them to discuss potential transactions.

OMERS Infrastructure said “categorically” that it is not in late-stage discussions with any party.

“As a long-term investor, we are always evaluating opportunities for the businesses within our portfolio. There have been some preliminary discussions with multiple parties who have expressed interest, which may or may not lead to a transaction,” OMERS Infrastructure said in an e-mailed statement.

Spokespeople for Quest Diagnostics and Andlauer Healthcare did not respond to requests for comment on Tuesday. LifeLabs referred inquiries on a possible transaction to OMERS, and Evercore declined to comment.

The current sale process is not the first time OMERS has put LifeLabs on the market. The pension fund manager had quietly tried to sell LifeLabs in previous processes and failed to find a buyer, according to two of the sources. There is no guarantee a sale will be completed or that OMERS will find a buyer willing to pay what it deems an acceptable price for LifeLabs.

The current auction could determine whether LifeLabs stays in Canadian hands, if Andlauer prevails, or whether U.S. health care companies will further take control of an already concentrated market for laboratory testing in Canada.

LifeLabs has 5,700 employees performing 112 million tests each year at labs in three provinces, Ontario, British Columbia and Saskatchewan. The company runs 382 collection centres and 16 laboratories.

LifeLabs’s major domestic rival, Dynacare, is owned by one of the largest U.S. medical testing companies, Laboratory Corp. of America Holdings, commonly known as Labcorp. Dynacare has 2,400 employees and 200 collection centres and labs in four provinces – Alberta, Manitoba, Ontario and Quebec. Burlington, N.C.-based Labcorp acquired Dynacare for US$480-million in 2002.

OMERS began building its diagnostics business in 2007 when its infrastructure arm acquired MDS Diagnostic Services for $1.33-billion from another Toronto-based company, MDS Inc., and rebranded the company as LifeLabs. Five years later, LifeLabs expanded its British Columbia platform by purchasing physician-owned B.C. Biomedical Laboratories Inc.

In 2013, LifeLabs became the country’s largest medical testing business – based on the number of tests it performs – when it purchased CML Healthcare Inc. for $1.2-billion. Quest also bid, unsuccessfully, for CML at the time, according to one of the sources, who worked on the transaction.

If OMERS does sell LifeLabs, it would be the asset manager’s second sale of a medical testing business in the past year. Last August, OMERS and Labcorp sold a jointly owned company in Alberta, Dynalife Medical Labs, to provincial-government-owned Alberta Precision Laboratories.

Quest has expanded in the U.S., Europe and South America over the past two decades through a series of takeovers. Its 50,000 employees already provide the medical services that form the core of LifeLabs’s business, with a portfolio of more than 3,500 tests available.

Andlauer Healthcare, founded in 1991, focuses on transportation and logistics, moving health care products such as COVID-19 vaccines from pharmaceutical companies to patients, hospitals and retailers. Two-thirds of its $479-million of revenue in the first nine months of 2023 came from its trucking business. Should Andlauer prevail, it would signal it is branching out into a new part of the health care industry.

OMERS’ pitch to potential buyers portrays LifeLabs as an infrastructure sector investment, with dependable revenues from providing medical services to an aging population, according to three of the sources. In 2022, LifeLabs rolled out new tests by striking a partnership with Natera Inc., which focuses on DNA testing, to provide individualized cancer testing.

LifeLabs’s primary clients are provincial health ministries and private insurers, which are pushing testing centres and other medical suppliers to cut costs. Any potential buyer will have to factor in governments’ and the insurance industry’s willingness to continue paying for medical tests into the price they offer for LifeLabs, the sources said.

OMERS oversees $127.4-billion in assets for firefighters, police officers and other public employees. LifeLabs is part of the pension fund’s $34-billion infrastructure portfolio. OMERS routinely recycles capital by selling long-term holdings, such as a medical testing business built through acquisitions, and putting the proceeds back to work in new investments.

Benefits Canada also reports OMERS evaluates sale of LifeLabs, CPPIB sells stake in software company:

The Ontario Municipal Employees’ Retirement System is considering the sale of LifeLabs Inc., according to a report by The Globe and Mail.

A spokesperson for the infrastructure arm of the OMERS said the investment organization has held preliminary negotiation talks with “multiple potential buyers” but is currently not in any late-stage discussions. The report said the OMERS is seeking an asset valuation north of the $2.5 billion that it invested into the firm.

The OMERS acquired LifeLabs for $1.33 billion in 2007 from Toronto-based firm MDS Inc. 

In other news, the Canada Pension Plan Investment Board is selling a part of its stake in European software company Visma.

The investment organization will retain a two per cent stake in Visma through a partial realization of the existing stake to a pool of existing and new investors, according to a press release, which noted the transaction values Visma at €19 billion and is expected to generate about $700 million in net proceeds.

“We thank the entire management team for their outstanding performance during a period of strong growth generating exceptional investment returns including in the unpredictable market environment witnessed over the last few years,” said Hafiz Lalani, managing director and global head of direct private equity at the CPPIB, in the release.

The CPPIB is also investing $1.2 billion for a 20 per cent stake of a joint venture holding a commercial real estate loan portfolio primarily located in the New York metropolitan area.

The portfolio, which holds about $17 billion worth of more than 2,600 first mortgage loans on retail, market rate multi-family and office properties, was previously owned by Signature Bank. The investment organization is collaborating with Blackstone’s real estate business for this transaction. The joint venture was created with the Federal Deposit Insurance Corp.

“The current real estate credit market is a promising source of long-term returns for the CPP fund and we look forward to exploring further opportunities to invest in this and other capital-constrained sectors,” said Geoffrey Souter, managing director and head of real assets credit at the CPPIB, in a press release.

Alright, let's begin with what we know.

Late last year, CPP Investments agreed to a partial realization of its investment in Visma:

Canada Pension Plan Investment Board (CPP Investments), through its wholly-owned subsidiary CPP Investment Board Europe Sarl., has signed an agreement for a sell down of its stake in Visma, a leading provider of mission-critical cloud software in Europe. The transaction is a partial realization of the existing stake to a pool of existing and new investors. CPP Investments will retain a ~2% stake in Visma. CPP Investments’ net proceeds from the transaction are expected to be approximately CA$700 million.

The transaction, which values Visma at EUR 19 billion, will welcome around 20 new investors worth over EUR 1 billion of equity investment. Additionally, EUR 3 billion of new investment will also come from existing shareholders.

Visma today is the largest privately-owned software business in Europe, and a leading provider of cloud accounting and ERP solutions to small and medium sized businesses in the region with revenues over ~€2bn. The Group is currently present in 28 countries with more than 15,000 employees.

“Since our first investment in Visma in 2019 and our subsequent follow-on investments, Visma has continued to lead the way as a scaled provider of mission-critical cloud software in Europe. We’ve realized solid returns during our ownership and will continue to back Visma as it continues on its growth path under the continued control ownership of Hg,” said Hafiz Lalani, Managing Director, Global Head of Direct Private Equity, CPP Investments. “We thank the entire management team for their outstanding performance during a period of strong growth generating exceptional investment returns including in the unpredictable market environment witnessed over the last few years.”

CPP Investments’ Direct Private Equity (DPE) strategy is focused on assets and sub-sectors where we maintain competitive advantages including a strong track record, superior insights, and strategic partnerships to deliver attractive risk-adjusted returns. At March 31, 2023, its active portfolio – direct investments with a controlling or significant stake – was valued at C$40.8bn, with total Private Equity assets of C$146.0bn, 26% of total assets.

This transaction has been signed and is subject to customary conditions and regulatory approvals. The transaction is expected to complete in the second quarter of the next calendar year.

What is CPP Investments’ Direct Private Equity (DPE) led by Hafiz Lalani?

Basically, CPP Investments manages the largest private equity portfolio in the institutional world and  they invest in a bunch of funds managed by world-class PE partners. 

When those funds wind down, sometimes LPs like CPP Investments bid on assets (companies) they want to keep in their portfolio as part of the direct investment portfolio.

This is what happened back in 2019:

CPPIB is a large international, institutional investor, managing the funds of the Canada Pension Plan on behalf of its 20 million Canadian contributors and beneficiaries. The transaction, led by CPPIB and following a competitive sales process for a stake in the business, will see CPPIB invest in a part of the holding currently held by Hg, a specialist technology investor and majority shareholder in Visma.

Following the transaction, Visma will have backing from some of the world’s largest institutional and specialist technology investors alongside lead investor Hg, including Cinven, GIC, Intermediate Capital Group and Montagu. Together, Visma and its strong investor base will continue to reinforce Visma’s position as a leading SaaS business in Europe and one of the world’s most successful SaaS companies.

The terms of the transaction are not disclosed. 

Now this form of direct private equity investing is different from co-investments where CPP Investments gains access to large transactions where they pay no fees.

That too is a form of direct PE investment because they pay no fees but there is no competitive bidding process there, it is an arrangement between LPs and GPs once they invest in a fund (and negotiate to gain access to co-investments).

Alright, so it sold its stake in Visma and realized $700 million which it will invest elsewhere.

Terms on the original deal were not disclosed so we do not know how much CPP made in terms of return but I'm assuming it was 2x the initial capital invested (minimum but I really do not know).

As far as the big mortgage deal buying mortgage loans previously owned by Signature Bank, I already covered it here so not getting into that again.

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Now, what about OMERS Infrastructure selling its stake in LifeLabs? 

That deal has not gone through yet so writing anything on it is pure speculation.

What we do know is there are two contenders -- Canadian based Andlauer Healthcare Group and US based Quest Dignostics.

Whether or not OMERS sells this company north of $2.5 billion remains to be seen but it's a great asset which would add significant long-term value to Andlauer or Quest.

It's part of the infrastructure portfolio because revenues are recurring, safe and non cyclical in nature but it could have just as easily been part of OMERS Private Equity.

If OMERS goes through with the sale, it will shore up its liquidity in its massive Infrastructure portfolio and mitigate the effects of taking a 28% writedown on its investment in Thames Water.

But again I want to stress there is no final sale to speak of here and if OMERS doesn't get its price, it simply won't sell this asset yet.

Below, in this clip, you can follow the typical journey of a test sample at LifeLabs—from how your sample is collected, to how your test results are reported!

Like I said, this is a great asset, one that many potential bidders will be looking at closely.

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