As IBO’s annual review of publicly listed contract testing lab companies shows, it was another year for revenue growth at the world’s largest laboratory service companies serving a diversity of industries. The pace of consolidation appeared to slow, but global expansion continued. The activities of three major contract testing companies, Campbell Brothers ALS, Eurofins and Intertek Caleb Brett, highlighted developments in the environmental and minerals testing sectors. Environmental As with many industries, private equity firms have increased their investment in the environmental testing market in recent years. The acquisition last year of Severn Trent Laboratories by Test America (see IBO 9/30/06), whose majority owner is private equity firm HIG Capital, created the largest US environmental testing company. Private equity company American Capital announced a $255 million investment in TestAmerica earlier this year. Private equity firms have also been active in Europe. In 2004, Candover purchased ALcontrol Laboratories, whose 30 European laboratories provide food and environmental testing, for £240 million ($444.4 million). 3Stone Advisors announced two environmental laboratory acquisitions this year. 3Stone is the Ohio-based general partner of 3Stone Investor Fund, a private equity fund focused on water-related investments. In January, it partnered with management to purchase Louisiana-based Gulf Coast Analytical Laboratories (GCAL). At the time, Charles Byrne, chief executive of Gulf Coast, stated, “We think this is a time of change and considerable opportunity in the environmental testing industry. Leveraging the strategic and capital resources of our partnership with 3Stone, we plan to expand the scope and geographic coverage of our business, through both grass-roots expansion and additional acquisitions.” In May, 3Stone Advisors acquired water testing services lab Benchmark Analytics. Investors include the company’s former owner. 3Stone Advisors envisions many changes in this market. Mr. Lueneburger, a principal of 3Stone Adivsors, told IBO, “The environmental testing market, a highly fragmented industry, is confronted with the growing need to automate to manage information and increasingly complex regulatory standards. We believe an answer for many participants to these challenges is consolidation—true consolidation of LIMS (laboratory information management system), finance, human resources, etc., not the failed roll-up strategies of the past.” GCAL was 3Stone Advisors’ first acquisition in the market. “We started our acquisition efforts in the environmental services market with GCAL because of their leading LIMS and strong technical capabilities, and are seeking additional businesses that have strong customer relationships and a reputation for high quality, but may be searching for answers to these changing industry forces that they don’t have the resources to address,” he commented. Asked about the factors driving growth in demand for water analyses, Mr. Lueneburger stated that future growth lies with new services. “The customer wants to know that his operation meets regulatory standards; and if it does not, what he can do about it,” he explained. “What that means is that in a market that is growing slowly overall, the opportunity to grow much more rapidly comes with the ability to deliver regulatory compliance management as a product, rather than just water testing—a turnkey service that includes not only a test, but also sample pickup, management and storage prior to water analysis, as well as data management and reproducibility along with a bookmarked PDF in the format required by the appropriate regulatory body.” These products would provide faster, more consistent growth than the traditional drivers of market growth, such as new water regulations. Also, as Mr. Lueneburger noted, new regulations are hard to forecast. LIMS are important element in enabling such services and are a key technical trend, according to Mr. Lueneburger. “[T]he trend constituting an irrevocable part of the industry DNA is the ability to integrate these new instruments into scalable laboratory information management systems capable of fully exploiting today’s technologies and growing with tomorrow’s, such as GCAL’s and Benchmark’s [LIMS],” he explained. “Continuously updating to current and leading technology is what it takes to compete, but it’s the LIMS that lifts leaders above the competition,” he said. “I believe that what makes a LIMS successful is the degree to which is integrated not only technologically—i.e., into the instrumentation and operational processes, but also organizationally.” 3Stone’s acquisitions are part of the ongoing consolidation in the environmental testing market, according to Mr. Lueneburger. “We believe that we will see substantial consolidation in this market. Unlike the previous consolidation waves, this one will take place in a mature industry where the realization that you can’t be all things to all people has firmly sunk in among leading competitors and consolidation means true combination of business activities,” he said. “One result of consolidation is likely to be the emergence of leading brands, which could stand for lowest cost, for example, or—more closely aligned with 3Stone’s perspective—consistently high quality and reliable regulatory compliance management.” Also expanding their environmental testing network are some of the world’s largest laboratory service companies. Citing an environmental analytical market worth more than AUD 2 billion ($1.6 billion) annually, Campbell Brothers managing director and CEO Greg Kilmaster announced the purchase of e-Lab Analytical earlier this month for AUD 18 million ($15 million). Located in Texas and Michigan, e-Lab has 100 employees. The acquisition is part of Campbell Brothers’ efforts to build its environmental lab network in the US. The company already has an extensive presence in the Canadian environmental testing market and, in July, furthered its North American holdings with the buyout of its partners in the ALS Indequim business in Mexico. Inspicio’s Environmental Services Group acquired the UK environmental laboratory Scientifics for £22 million ($44 million) this summer, adding to its Environmental Services Group business, which includes Soil Mechanics, TES Bretby testing and environmental services, and Environmental Chemistry businesses. In the first half of 2007, Environmental Services revenues more than doubled to £22 million ($44 million), including one month of revenues from Scientifics. Eurofins Scientific AG expanded its environmental testing business with the acquisitions of ALcontrol’s French lab and LabNett of Scandanavia, which has 800 employees. Both acquisitions provide food and environmental testing services. Eurofins also opened a new dioxin testing lab in Hamburg, Germany, and won authorization to enter France’s drinking water analysis market when it is deregulated in 2008. In June, Eurofins won a €28 million ($37.3 million) five-year contract to provide water testing and sampling services to England’s Southern Water, through a transfer of lab assets and employees. Minerals Testing Minerals testing has been one of the most active areas of contract testing services, especially acquisition activity, due to record demand for metals and high metal prices. Intertek Caleb Brett and Campbell Brothers ALS both made acquisitions in this sector within the last year. To expand its Minerals division, Intertek Caleb Brett acquired Australia-based Genalysis Laboratory Services earlier this year for AUD 42.0 million ($33.1 million). “The acquisition of Genalysis is a major step in Intertek’s goal to be the recognized leader for minerals analytical testing in Asia Pacific and Africa,” said John Fowler, regional manager of Minerals Asia for Intertek Minerals. Genalysis processes over one million samples a year and has more than 300 employees. “High prices encourage exploration and therefore testing,” Mr. Fowler told IBO. “Gold and copper are always popular. Iron ore is currently very big, as is nickel. Uranium is also very popular right now, as are the platinum group metals,” he said. Asked about current technical trends in minerals testing labs, he noted, “low detection limits with ICP-MS are having an impact as is the introduction of robotic laboratories.” The need for automation is related to business trends. “The most obvious trend is that almost all minerals labs are operating near capacity, and this means clients are not receiving services as rapidly as they would like,” he explained. “Most labs are attempting to address this, but it takes time to upgrade and expand, and shortages of skilled labor are an issue in some locations.” In its most recent annual report, Campell Brothers’ contract testing division, ALS, reported increased sample volumes for its Mineral division, as well as new metallurgy and mineralogy services. In fact, Campbell Brothers’ fiscal 2007 growth was driven by ALS Chemex, the company’s Minerals division, particularly by its analytical services offerings. In fiscal 2007, ALS revenues increased to AUD 342.2 million ($269.3 million), with 38% growth due to acquisitions and 26% organic growth. During the fiscal year, the company acquired minerals lab company Abilab, which operates in Mali and Burkina Faso, doubling its African business. In its efforts to expand geographically, ALS opened mineral testing labs in Australia, Eastern Europe, Brazil, Canada and China during the fiscal year and reported that labs in Australia, Russia and West Africa are under construction. Testing and certification firm Bureau Veritas opened a new minerals lab in Tianjin, China, earlier this year, while SGS Minerals Services opened labs in Chennai, India, and Chita, Russia. SGS’s geochemical lab network includes more than 40 locations. In Australia, Amdel expanded its nationwide lab network to 22 by acquiring Independent Metallurgical Laboratories and Ultra Trace Analytical Laboratories. Amdel also serves the environmental and food industries and had AUD $54 million ($41.2 million) in revenues in 2005. It is owned by management and private equity firm CHAMP Ventures.