Private Equity Wins on COVID-19 Testing Kits

VPEG3’s underlying investment in Legend Corporation Pty Ltd, completed by investee Adamantem Capital Fund I during August 2019, is currently benefiting from a strong demand in volumes for tiny parts made from an Adelaide plant used to create COVID-19 testing kits.

Legend Corporation, which has manufacturing businesses across electronics, data storage equipment and semi-conductors, is experiencing a heavy uptick in demand for ceramic substrates made by its Hendon Semiconductors business, which are a component in COVID-19 testing kits.

Legend supplies the tiny components to Adaptas Solutions, a US business with operations in both the US and Australia, which in turn makes vital scientific measurement parts used in COVID-19 test kits. The relationship between the two companies stretches back to the supply of drug testing kits for the Sydney Olympics in 2000.

Legend chief executive Gary Uren, who took the helm last year, said the Hendon Semiconductors manufacturing operations at Hendon in Adelaide’s western suburbs also supplied components for Resmed’s CPAP machines designed to help sleep apnoea sufferers, and ventilation machines.

“Hendon is doing very well at the moment. Certainly volumes have increased,” Mr Uren said.

It was difficult to make forecasts about how high demand might rise amid the coronavirus pandemic, but output would likely remain elevated for some time.

Legend’s other main businesses include Cabac, which makes electric cables, wiring and testing systems, and Legend Performance Technology which makes data racks and other equipment for data rooms, have also been making solid headway.

“All of our businesses are up during this crisis,” Mr Uren said.

But the hard New Zealand lockdown imposed by Prime Minister Jacinda Ardern last month had been a constraint on the group’s New Zealand operations in the short term.

The combined Legend businesses make annual revenues of around $185 million.

Legend is keeping a close eye on potential acquisition opportunities to build more scale, and Mr Uren said some of those will undoubtedly be in a weaker financial position because of the economic fallout of the coronavirus pandemic.

“We currently have a very strong pipeline of targets. Potentially some of them will become cheaper,” he said.

Mr Uren ran businesses in the US for a decade including leading an IPO in 2016 of industrial products group Atkore International, before returning to Australia last year.

He said the groundswell among policymakers to re-establish broad manufacturing industries in Australia in the post coronavirus world may not eventuate. Labour costs are high and it will be difficult to re-establish heavy industry in particular.

“I think the genie is out of the bottle in some respects,” Mr Uren said, referring to the large volume of manufacturing which has been established in Asia.

“I think it would be very difficult to do in Australia. I’m not sure that Australia would be doing some of that heavy manufacturing again,” he said.

Mr Uren also said that private equity ownership was enabling fast decision making compared with the constraints of regular public reporting of financial results for businesses which might need to invest more heavily from time to time to allow for future growth.

“It’s a lot easier to get things done,” Mr Uren said of the private ownership.

“It just frees up your thinking.”

Source: Australian Financial Review, 27 April 2020 (https://www.afr.com/companies/healthcare-and-fitness/private-equity-wins-on-covid-19-testing-kits-20200427-p54nfv), Editor: Simon Evans.

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