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Independent testing labs: consolidation continues.

Independent testing labs remain a prime acquisition target. As IBO detailed last year (see IBO 10/31/05), consolidation in the independent testing laboratory sector has been driven by the segment's largest companies, which seek to build critical mass, leverage their scale as well as diversify their testing businesses geographically and by industry. As major acquisitions in the environment and food testing segments show, the consolidation trend continues, indicating that these providers will have a greater influence on methods development, global standardization and instrumentation needs.

A just-announced acquisition in the environmental testing sector is set to create a dominant player among US environmental testing providers. Oil September 26, Severn Trent announced plans to sell its Severn Trent Laboratories (STL) division to TestAmerica Holdings for 85 million [pounds sterling] ($154.5 million). Fiscal 2006 revenues for STL grew 2.7% to 167.2 million [pounds sterling] ($303.6 million) of which the US accounted for 81%. However, US sales grew only 1.6% to 134.7 million [pounds sterling] ($245 million), and the division's operating profit fell 27% to 11.1 million [pounds sterling] ($20.2 million). In the US, STL operates 31 labs and 16 service centers. Earlier this year, it acquired Environmental Analytical Solutions based in New Orleans, Louisiana.

With 2005 revenues of $125 million, TestAmerica is ranked as the as the second largest US environmental testing company, according to Environmental Laboratory Washington Report (see IBO 5/15/06). A unit of H.I.G. Capital, TestAmerica operates 31 laboratories in the US. According to Severn Trent, the new company's assets will include 54 analytical laboratories. The transaction is expected to close by year-end and will also include STL's QED Environmental Systems unit, a developer of sampling and remediation pumping systems.

However, the focus of much of the acquisition activity among larger testing companies has been outside the US due to the growing body of environmental regulations abroad. Bodycote continues to build the Environmental Division of its Testing business. This year, it acquired Canadian firm Northwest Soil Research, which owns nine laboratories and offers services for environmental testing as well as testing for the food and energy industries. This summer, Bodycote bought Casella SEAL's Soil and Water Testing division, consisting of three UK-based environmental labs.

Also building its UK environmental testing business is Inspicio, which earlier this year acquired Environmental Services Group Ltd. (ESGL) for 16 million [pounds sterling] ($29 million). A provider of environmental testing and consulting services, ESGL operates 16 offices with a technical staff of 800. The company's divisions include Soil Mechanics and the TES Bretby mineral and waste testing laboratories.

The Laboratory Services business of Australian firm Campbell Brothers also increased its stake in the environmental testing market over the past year. Campbell Brothers sought to gain a greater foothold in North America by expanding its Canadian lab network. In January, the company's ALS Environmental division purchased Enviro-Test Laboratory (ETL), which operates 12 labs in Canada with more than 600 employees, for $57 million. According to Campbell Brothers, the ETL purchase brings its North American laboratory revenues to more than $125 million per year and makes it the largest commercial lab group in Canada.

As Campbell Brothers seeks to expand its global business, Europe is also a focus. Earlier this year, the company purchased Czech Republic-based Ecochem for $18 million. Ecochem serves the food and environmental markets and employs 250 people. Sweden's Analytica AB, acquired last month by Campbell Brothers for $25 million, provides environmental testing services as well as testing for the pharmaceutical and electronics industries. It operates two labs and service centers in Norway and Denmark. The acquisition brings the Campbell Brothers' annual European revenues to $34 million and gives it a European staff of 350.

SGS SA, the world's largest testing and certification company, also added to its environmental business, which consists of more than 30 labs worldwide. In December 2005, it purchased US-based Paradigm Analytical Laboratories. Paradigm became SGS's second HRMS (high resolution mass spectrometry) Centre of Excellence. In 2005, SGS Environmental Services' revenues grew 12.7% to CHF 235.0 million ($188 million), and operating income increased 56.6% to CHF 26.0 million ($20.8 million). First-half 2006 sales grew 12.7% to CHF 125 million ($100.8 million), including 6.9% organic growth. The company is increasingly offering environmental testing services in combination with services performed by its Minerals Services and Oil, Gas and Chemicals Services divisions.

Medium-sized private environmental laboratories have also been bulking up. EMSL Analytical acquired Hygienetics Environmental Services' asbestos lab division in May. EMSL Analytical operates 26 US laboratories. Last year, it purchased Global Environmental Laboratories, based in St. Louis, Missouri, expanding its Midwest business and adding microbiological testing for food.

In fact, food testing, especially microbiological testing, has been an active segment for acquisitions by a number of large independent laboratory firms. Last year, food testing and consulting company Silliker Group acquired Clabo Conseil, the largest food testing operation in France with 2005 revenues of 26 million [euro] ($32.5 million). According to its website, Silliker revenues grew more than 16% in 2005 to $154.9 million.

Another major acquisition in the food sector was this summer's acquisition of UK-based Eclipse Scientific Group by Inspicio for 47 million [pounds sterling] ($85.5 million). Eclipse Scientific Group posted 2005 revenues of 12.5 million [pounds sterling] ($22.7 million), of which food and beverage testing accounted for 66%. Eclipse itself acquired four laboratories last year. Inspicio estimates the food and pharmaceutical testing market to be worth 540 million [pounds sterling] ($982 million).

In fact, new national and regional regulations have made the UK food labs particularly attractive. Bodycote brought its total number of food testing labs to four, with the purchase of UK-based Tetra Laboratories and Norpath Laboratories earlier this year. This month, it added Scotland-based Foodscan. The company also made its first US acquisitions in the food sector last year with the purchase of Food Products Laboratory.

Eurofins continued to add to its network of European food testing capabilities with the purchase of Steins Laboratorium A/S, expanding its dairy and milk testing capabilities. Steins employs 180 staff and has annual revenues of 15 million [euro] ($18.8 million).

While much of the food and environmental testing business is driven by regulations, the primary drivers of the fast growing market of outsourcing laboratory services are the oil and gas, chemical and mining industries. Caleb Brett, SGS and Campbell Brothers are major providers of laboratory services to these markets. Each company reported impressive results, bolstered by acquisitions for these markets.

Last year, Caleb Brett acquired PerkinElmer Automotive Research Laboratory, whose services include analytical testing services for the petrochemical industry. Caleb Brett's fuel testing expertise was also augmented with the acquisitions of Lintec Testing Services for 3.0 million [pounds sterling] ($5.5 million) and Lubricant Quality Scan (LQS) for 0.4 million [pounds sterling] ($0.7 million). Both companies provide marine fuel and lubricant testing services for the shipping industry. The purchase of LQS was an extension of Caleb Brett's outsourcing arrangement with Lloyd's Register.

Another acquisition to grow out of an outsourcing arrangement was this month's purchase by Caleb Brett of Polychemlab from DSM NV subsidiary Chemelot BV. Polychemlab serves as the lab for DSM and Sabic Europe's operations at the Chemelot Chemical and Science Park in the Netherlands and performs more than 100,000 analytical tests per month. Testing services include QA/QC and production performance testing, The acquisition and five-year outsourcing agreement will add 175 employees.

To meet the chemical industry's growing outsourcing needs, Eurofin's recently formed an Agroscience Services team this summer. The operations consist of recently acquired UK-based Agrisearch and Germany's GAB Biotechnologie as well as the company's ADME Bioanalyses operations, based in France, and Dr. Specht Laboratorien in Germany.

In the energy sector, SGS has marshalled new resources. hi February, it acquired Cotax AS, which provides lab testing and services for the oil and gas operators in the North Sea and has annual revenues of more than NOK9 million ($1.3 million). It also purchased McMurray Resources Research and Testing, which provides analytical and material testing services for energy and geological applications and had Can$8 million ($6.6 million) in sales last year. In August, SGS opened a new lab in Lakefield, Canada, calling it the cornerstone of its Advanced Mineralogy Network.

Independent testing labs continue to penetrate the highly competitive CRO market. Additions to Bodycote's Health Sciences Division over the last year include UK-based Cirrus Laboratories and Prova, bringing its number of UK labs serving the drug industry to four. Eurofins also added to its established CRO business, acquiring US-based AvTech Laboratories, which has annual sales of $5 million. Eurofins Pharmaceutical Services division added France's Pharmacontrol and Optimed to its roster earlier this year. And to increase its clinical trials expertise, this summer, Eurofins bought Focus Bio-Inova, which offers services worldwide and posted 2005 revenues of $15 million.

SGS Life Science Services, whose 2005 revenues grew 17.7% to CHF 125.3 million ($100.2 million) acquired two labs. In January, the company bought aster.cephac, based in Paris, France, which provides clinical pharmacology trials and has annual revenues of 35 million [euro] ($43.8 million). In February, SGS acquired Northview Biosciences, which provides analytical, chemistry, microbiology and sterility assurance services for pharmaceutical, biotech and medical device industries. The l0 million [euro] ($12.5 million) business includes two labs and 100 employees. The acquisition is part of SGS's strategy to grow its quality control testing business. In June, the company officially launched its quality control testing services business, tailored to small and midsized biotech companies.
 FY2005 (M)
 Rev. % Chg. Op. Profit % Chg.

Bodycote (Testing) $158.4 29.4% $29.6 28.7%
76 laboratories in Four segments: Materials Testing, Engineering
12 countries & Technology, Health Sciences, Environment
 Testing. Revenues grew 9% organically in
 2005. Made 10 acquisition in 2005 for 21.9
 million [pounds sterling] ($39.8 million)
 and plans 10 small to medium acquisitions

Campbell Brothers
(Lab Services) * $294.2 44.8% $66.6 44.2%
70 laboratories in Market segments: Environmental, Minerals,
24 countries Oils, Food, Electronics. Plans to open
 a minimum of eight new laboratories in
 CY 2006.

Scientific AG $291.4 34.5% $37.1 112.0%
More than 70 Spent $48.5 million on acquisitions in
laboratories in 2005. Its largest markets are: France
17 countries (19.6% of sales); Germany (18.9%); and
 Scandinavia (16.6%).

(Celeb Brett) $418.4 21.0% $31.3 15.1%
More than 215 Provides analytical, inspection and
laboratories in outsourcing services. Analytical services
118 countries revenues grew 41.2% in pounds to account
 for 36% of revenues with seven acquisitions
 contributing 15.3 million [pounds sterling]
 ($27.8 million) in revenues.

 First-Half FY2006 (M)
 Rev. % Chg. Op. Profit % Chg.

Bodycote (Testing) $123.1 78.1% $17.5 45.9%
76 laboratories in Revenues grew 10.2% organically in 2005
12 countries and completed 10 acquisitions.

Campbell Brothers
(Lab Services) * N/A N/A N/A N/A
70 laboratories in
24 countries

Scientific AG $188.6 51.2% $14.9 21.2%
More than 70 The company has raised its 2006 revenue
laboratories in guidance from 300 million [euro] ($375
17 countries million) to more than 340 million [euro].
 Its 2007 revenues are forecasted to be
 400 million [euro] ($500 million).

(Celeb Brett) $245.1 32.3% $24.5 48.5%
More than 215 New labs opened in China, Thailand and
laboratories in Papua New Guinea
118 countries
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Publication:Instrument Business Outlook
Article Type:Company overview
Date:Sep 30, 2006
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