Corsair Capital Q4 Letter: Long ALRVW Staff
Appendix Alere Inc. (“ALR” – $39.00) via MarketFolly
ALR is a medical diagnostics company with leading market shares in point-of-care rapid tests used in hospitals, clinics and doctors’ offices for infectious diseases, cardiology, toxicology, and diabetes. After a decade of M&A fueled-growth, ALR is viewed as an over-leveraged empire builder reporting negative GAAP earnings. While the market uses a rear-view mirror to analyze ALR, we are looking forward and believe we detected an inflection point when management pledged to change course, end its acquisition spree and embark on an operational and balance sheet restructuring plan. We continue to see a different company with a new dynamic – a management team committed to creating shareholder value by 1) restructuring its businesses, 2) focusing on its high growth products, 3) divesting non-core assets and 4) paying down debt. Looking to 2015, we see a company with a high quality diagnostics business – with #1 global market shares and EBITDA margins approaching 30% – which could generate more than $4.00 per share in FCF and cut its debt in half. While the
market continues to value ALR at a P/E multiple nearly 50% below its peers, we believe ALR will be re-rated over the next 12 months with a significantly higher multiple as management executes its plan, yielding a stock price of $70-$80 per share.
Founder and CEO Ron Zwanziger built ALR from scratch after he sold the assets of Inverness Medical Technology (“IMA”) to Johnson & Johnson (“JNJ”) in 2001. Following the transaction, Zwanziger changed the name of the company to Inverness Medical Innovation and spent the next decade acquiring mostly medical diagnostic assets. This core Medical Diagnostics business is a global operation with leading market shares in various product lines.
Now called Alere, the company develops and sells rapid, point-of-care tests that offer medical practitioners accurate results within minutes. With ALR’s products, doctors and nurses can quickly detect infectious diseases such as HIV, colitis, mononucleosis, Lyme disease, herpes, malaria, and measles, among others. The company also sells products to help diagnose cardiovascular diseases, blood diseases, and drug use.
Full PDF here: Corsair-Capital-Alere