Proposed acquisition of Launch Diagnostics

Launch Diagnostics is a leading independent distributor in the UK in-vitro diagnostics (IVD) market

 Acquisition accelerates Avacta’s diagnostics strategy and is the first step in its drive towards building an integrated and differentiated IVD business with global reach


Avacta Group plc (“Avacta” or the “Company“), a clinical stage oncology drug company and developer of powerful diagnostics based on its Affimer® and pre|CISION™ platforms, is pleased to announce that it has conditionally agreed to acquire Launch Diagnostics Holdings Limited (“Launch Diagnostics“) for an upfront cash consideration of £24 million (on a debt-free/cash-free basis and subject to customary working capital adjustments) with an earn-out based on future business performance capped at £13 million (the “Acquisition“).

The Acquisition is the first step in a M&A-led growth strategy by Avacta for its diagnostics division, with the vision of building an integrated and differentiated IVD business with global reach serving professionals and consumers. The Company believes that there is a significant commercial opportunity in the EU and the UK markets, which are fragmented, to build its position in the immunodiagnostics and molecular diagnostics value chain by acquiring companies that are complementary to Avacta’s core strengths in research and development.

Transaction highlights:

  • Launch Diagnostics is a leading independent IVD distributor in the UK with over 30 years’ track record, with its headquarters in Kent and around 70 staff. It provides immunodiagnostic and molecular test products, technical support and maintenance to healthcare providers. Launch Diagnostics serves private and public sector customers throughout the UK, France, Belgium, Luxembourg and Republic of Ireland, with c. 95% repeat business.
  • Total consideration for Launch Diagnostics includes an initial consideration of £24 million in cash payable upon completion of the Acquisition and an additional consideration of 50% of the gross margin on sales exceeding £2 million per annum of Launch Diagnostics’ COVID-19 related products for 3 years capped at £13 million (in aggregate).
  • Launch Diagnostics generated £14.17 million of non-COVID-19 related revenue in FY21, with total revenues including COVID-19 related products of £32.75 million. Since FY19, the gross margin in total sales has consistently been in the range 44-50% across all products.[1]
  • 73% of Launch Diagnostics’ revenue for FY21 was generated in the UK and 27% was generated in France and the Benelux region.
  • Acquisition values Launch Diagnostics at 1.35x its FY21 revenue, including an 80% discount of revenues derived from COVID-19 related products.
  • Key management of Launch Diagnostics will remain in place with the exception of principal selling shareholder who will retire and will be replaced by a Managing Director from within the business.
  • The global IVD market is projected to reach sales of $113.1 billion by 2026[2] which comprises a wide range of test products into multiple healthcare settings from hospitals to home testing.


M&A strategy for growing shareholder value 

The Acquisition provides Avacta with an established route to market in the UK and several European IVD markets for existing and future products that it distributes, develops or acquires. It is the first step in building an integrated IVD business with global reach that has the advantage of Avacta’s proprietary Affimer® platform to differentiate its immunodiagnostic products in a competitive market. Avacta has been working for a year on this M&A-led growth strategy for its diagnostics division and the establishment of a pipeline of potential acquisitions in the European diagnostics sector.

To that end, Avacta has formed a dedicated integration team which has a successful track record of integrating acquisitions, across multiple business sectors. Avacta believes a number of potential growth opportunities are open to Launch Diagnostics, including the cross-selling of tests for a wide range of pathogens into the recently expanded installed base of PCR equipment post-COVID-19 (e.g. legionella, viral meningitis, giardia, cryptosporidium), the addition of new products to Avacta’s portfolio and geographical expansion, particularly into Germany and certain North African countries. The team will centralise functions where appropriate to drive efficiencies across the enlarged Group infrastructure and support autonomy where it is considered to be efficient and productive.


Background and rationale for the acquisition of Launch Diagnostics

Established in 1990 and headquartered in Longfield, Kent UK, with a French subsidiary and operational hubs in Ireland, Belgium and Luxembourg, Launch Diagnostics is a leading independent distributor in the IVD market within the UK. It combines 17,295 ft2 offices and warehouse facilities in the UK with 230 m2 logistics facilities in Houlle, Northern France.

Launch Diagnostics supplies a diverse portfolio of innovative, high-quality devices and equipment that diagnose disease, providing complete solutions from diagnostic tests to equipment, servicing, training and technical support. It develops bespoke solutions via long-standing relationships and exclusive supplier contracts with manufacturers globally, providing access to cutting edge products and equipment. Launch Diagnostics is able to provide expertise to key suppliers for new product development and innovation by offering customers access to a highly knowledgeable and technically qualified team. Revenue consists of tenders for new products to health trusts, contracts for reagent rentals where Launch Diagnostics provides both the physical equipment and the reagents used and annual quotations for the supply of diagnostic reagents.

Launch Diagnostics is devoted to keeping abreast of new and emerging technologies in a rapidly changing specialist diagnostics industry. Its product portfolio includes a comprehensive range of unique tests that employ genetic, immunoassay, enzymatic, chromatographic and microscopic techniques, spanning over 4,000 different products.

Launch Diagnostics operates within a highly regulated market with high barriers to entry and low client churn driven by detailed and lengthy client on-boarding processes which ensure that its market position is well protected. Its customers include both public and private sector (e.g. hospitals, clinical trial units, cancer centres, and commercial laboratories) and it has a long-established and experienced team with an outstanding reputation in the industry for customer service. Launch Diagnostics has over 4,000 products from 31 suppliers, with 501 active customers and, typically, operates on 3-5 year contracts with c. 95% repeat business.

In the financial year to 31 December 2021, Launch Diagnostics generated revenues related to sales of products for COVID-19 testing and products unrelated to COVID-19. Launch Diagnostics’ core, non-COVID-19 revenues were £14.17 million and total revenues were £32.75 million with total Adjusted EBITDA of £8.52 million[3] and a profit before tax of £9.36 million. As of 31 December 2021, Launch Diagnostics had net assets of £17.0 million. Launch Diagnostics’ FY21 revenues were geographically split between the UK and France and the Benelux region, with the former accounting for £23.85 million and the latter £8.9 million.

During FY20 and FY21, Launch Diagnostics’ revenue growth was driven primarily by its COVID-19 testing products and, whilst these revenues have been discounted by 80% in Avacta’s valuation of the business, the Company believes there is still potential for some sustainable ongoing COVID test revenues from symptomatic testing in hospitals. During the past two years, the focus on COVID-19 testing saw Launch Diagnostics’ sales of non-COVID-19 products fall from £18.51 million in FY19 to £14.17 million in FY21, but this business is now increasing as customers return to normal purchasing cycles.

Avacta intends to run Launch Diagnostics as a separate business, retaining the brand and culture that has driven its success, combined with the potential to benefit from synergies as Avacta’s diagnostics division grows. In the UK, Launch Diagnostics will continue operating at its current site, though in the longer term, investment will be made to move to more modern premises. In the short term, there will also be investment in the business’ team. In Europe, operations will continue from their current location, with further investment in personnel and in a new facility in northern France.

On completion of the Acquisition, Avacta’s enlarged Diagnostics division would be an IVD developer and distributor with a broad range of over 4,000 products covering immuno-diagnostics and molecular diagnostics for professional use, with potential for further growth and value creation. It would have control of key elements of the value chain from product IP to customer relationships and the Company’s existing, unique Affimer® platform will help differentiate its immunodiagnostic products in a competitive market. This platform, and the combined experienced of the Avacta and Launch Diagnostics management teams, will put Avacta in a strong position to continue a M&A led growth strategy to build a leading European IVD business.


Financing the Acquisition 

The cash consideration for the Acquisition is intended to be financed out of the net proceeds of a financing by way of a convertible bond issue by Addition Finance (Jersey) Limited, a wholly-owned subsidiary of the Company incorporated in Jersey (the “Issuer“) (the “Convertible Bond Offering“).  Alongside the Convertible Bond Offering, funds are also being raised by way of a placing via an accelerated bookbuild to raise gross proceeds of approximately £5.0 million (the “Placing“) and an open offer to certain existing shareholders of the Company (the “Open Offer“) (the Convertible Bond Offering, Placing and Open Offer together being the “Fundraise“).  The Fundraise will be launched in due course and a separate announcement will be issued today setting out further details of this.

The Acquisition is conditional on the Company being in receipt of not less than £45 million from the Convertible Bond Offering before 6.00 pm on 14 November 2022. The initial cash consideration for the Acquisition is £24 million, payable on completion, on a debt-free/cash-free basis and subject to customary working capital adjustments. The earn-out consideration of 50% of gross margin on sales exceeding £2 million per annum of Launch Diagnostics’ COVID-19 related products is payable in respect of each of the next three years, which an overall cap of £13 million (in aggregate) over that period.

The funds raised pursuant to the Fundraise will also provide Avacta the balance sheet flexibility to continue to execute an M&A led growth strategy for its Diagnostics business, invest in those acquired businesses to drive growth, and to provide working capital for the wider Avacta group.


Dr Alastair Smith, Chief Executive Officer of Avacta, commented:

“This acquisition will add an established distribution channel to Avacta with three decades of customer relationships and deep market knowledge to drive future product development, strategy and growth. It is the landmark first step in our ambitious M&A-led growth strategy for Avacta’s diagnostics division that has been a year in the making.

“Our vision is to build an integrated, differentiated, global reach IVD business serving professionals and consumers, that uses the benefits of its Affimer® platform to differentiate immunodiagnostic products in a competitive market. This is a transformational moment for Avacta Diagnostics, adding a well-established route to market for existing and future in-house and acquired products in the UK and across several key European markets.

“Avacta’s Therapeutics division continues to make good progress as expected in the clinical development of AVA6000, its first therapeutic product based on its proprietary pre|CISION™ technology as it progresses with the fourth cohort of patients in the phase 1 dose escalation study ALS-6000-101.”

John Twycross, Managing Director of Launch Diagnostics, commented:

“For over 30 years, the senior leadership team have built Launch Diagnostics to become one of the largest independent diagnostics distributors in the United Kingdom, providing pathology solutions encompassing high quality diagnostic reagents and instrumentation from world leading manufacturer’s to the health services of the United Kingdom, Belgium, Luxemburg, France and the Republic of Ireland.

We are delighted that, as Launch Diagnostics becomes part of the diagnostics division of Avacta, there is a shared ambition to continue the growth of the group with a continuing focus on excellence and the ability to offer a wide range of trusted and efficient diagnostics solutions, both from existing and emerging technologies, to all our customers.”

[1] All Launch Diagnostics financial information presented in UK GAAP.


[3]Adjusted EBITDA is defined as earnings before income tax, depreciation and amortisation, adjusted for a market rate Managing Director salary and the removal of non-recurring professional fees.