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Big demand for shares as marketing firm builds war chest for acquisitions

An oversubscribed fundraising (1 Feb) reflects healthcare marketing play Cello’s (CLL) scarcity value as means of gaining exposure to an attractive US pharmaceutical and biotechnology industry.

The company raised £15m at 97p (a modest discount to the prevailing share price) alongside the $5.75m (£4.6m) acquisition of US biotech consultancy Defined Health.


The company did not need to raise funds for the deal as it has limited debt on its balance sheet. However, it did so as a way of broadening its investor base and raising funds for further acquisitions which can accelerate growth ambitions across the Atlantic.


Cello has two divisions: Cello Health and Cello Signal. Revenue-wise the split is roughly 50:50 but the Health arm delivers significantly better margins and therefore accounted for around 70% of first half operating profit.

The marketing group trades on 12.5 times forecast earnings for the current financial year. That’s based on broker Cenkos’ estimates which factor in the impact of the acquisition and the placing of new shares.

Cenkos analyst James Fletcher comments: ‘It is expected that revenue synergies will be extracted from the acquisition, as Cello cross-sells Cello Health Consulting services to Defined Health’s customer base and vice versa, as well as the other disciplines of Insight, Communications and Consumer services.’

Smaller companies

Cello chief executive Mark Scott says future acquisitions, like Defined Healthcare, will be focused on building exposure to US biotech in a market he says remains highly fragmented. By building scale Scott reckons the business can win more work from US healthcare businesses in the domestic market where the contracts are typically larger.


Scott is mindful that acquisitions are capable of destroying value as well as creating value. He says: ‘We’re very cautious. Unless we know the company and people in question quite well we would be reticent (to acquire a business) and we’re not prepared to participate in an auction. We also need to ensure there’s a managerial fit and no client conflict.’

The company’s increasing exposure to the US could be translate into a currency boost when it reports full year results on 22 March. There may also be an update on M&A plans alongside these numbers.

FinnCap has a price target of 132p implying upside of just over 30% at the current 101p. Progress in boosting its US presence should act as a catalyst for the shares.

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