MERGERS AND ACQUISITIONS IN THE IRRADIATION INDUSTRY Yves Henon, Asiaster Pte Ltd

Please allow me to start by saying that the views expressed in this presentation are personal views and not the views of any organization. Mergers and Acquisitions are not new in the irradiation industry but their pace and magnitude over the recent past has been spectacular.

New to irradiation business Greenfield + Acquisitions The interesting case of Isotron ISOTRON - UK 1983: 1+1 = 2 irradiators 2007: SYNERGY HEALTH PLC New to irradiation business 1985: PLC GROWTH Greenfield + Acquisitions GAMMASTER 2002 EBIS Iotron 2005 Vintech EB 1990 I think that a company is an interesting example of what happened …. 2007 Surprise Surprise A big fish that came from nowhere

Sterilgamma - Malaysia 2011 SYNERGY HEALTH PLC Leoni Studer - Switz. 2012 GSP - Germany 2010 Bioster - Italy 2014 BeamOne – USA 2011 A couple of years after having absorbed Isotron …. Synergy Health Plc developed a taste for acquisitions 12 countries – 29 sites 18 Gamma – 12 EB – 13 EO

Initially mostly greenfield expansion USA - Thailand – China STERIGENICS Est. 1991 . Successively owned by IBA (1999), Silverfleet (2004), GTCR (2011 for $675M) FITS - USA 2014 Gammarad - Italy 2014 The pattern for Sterigenics (# 1) was somewhat different 11 countries – 44 sites 18 Gamma – 4 EB – 17 EO

Immediate revenue through access to an established market Advantage of mergers and acquisitions over greenfield investment Immediate revenue through access to an established market Licenses for gamma plants exist Competent personnel in place Acquisition of new technology / know-how Risks Acquisition of the company’s problems also Bad surprises possible Price might be too high Difficulties to integrate different company cultures, IT systems, QA systems

In 2014 mergers and acquisitions changed the landscape of contract radiation processing

Sterigenics enters in a definitive agreement to acquire Nordion Mars 29, 2014 Sterigenics enters in a definitive agreement to acquire Nordion $826M Major and critical supplier of After my cup of coffee when I opened my favorite website on 29 March 2009, I was in for a surprise….. 5th May 2014, other surprise May 5, 2014 REVISS Services (UK) Ltd announces plans to cease trading

Some were not amused…… Interesting to see the reaction of Synegy Health shortly after CLICK

+ = October 13, 2014 Steris to acquire Synergy Health $1.9 Bn $2.6 billion in annual revenues 14,000 employees in 60 countries + = Acquisition or merger ? Incidentally, acquisition or merger ? Steris website – Synergy website Shows once more that the US and the UK are separated by a common language

Cobalt-60 demand balance between the 3 top contractors 18 + 1 = 19 GAMMA SITES 18 + 12 = 30 GAMMA SITES Does not change regulatory pressures on the use and transportation of cobalt-60 Cobalt-60 demand balance between the 3 top contractors

PRIVATE EQUITY FIRMS PUBLIC COMPANIES MOM & POP’S IRRADIATOR 24 / 7 It seems that in N. Amreica and Europe we are witnessing the end of an era ? Good bye old mom and pop’s irradiators ! Hello PE firms and PLCs !

Source: Synergy Health Annual Report 2014 Source: GTCR website Source: Reuters 22 October 2014 It is interesting to listen to the way they speak shareholder value…

MORE PROFIT Grow volumes Grow margins Increase number of centres + Eliminate competition Increase prices Control cost Surf on the wave of the healthcare business Limit cobalt-60 price increase My English is not that sophisticated but I think that what they mean is « we want more profit » Grow margins The Feeling that the price of the service is too low Economy of scale

Mergers and acquisitions in China Limited in number and size Beijing Research Centre for Radiation Applications acquired HYSF in 2008 Okoic built 2 units and acquired 2 before selling all 4 in 2013/14 CNNC acquired irradiators Suzhou and Zhanjagang One example of vertical integration The China Isotope and Radiation Corporation (CNNC) owns 8 gamma irradiators and one accelerator (7 locations), the national cobalt-60 supplier (Tongxin) and a gamma irradiator manufacturer (BINE) All recent attempts by foreign companies to acquire Chinese operators failed.

Multiplicity of players Greenfield investment the preferred approach Market leader Zhongjin has 10 gamma irradiators in 6 locations and is building 2 more in 2 locations. Price of service is low. Why so few acquisitions ? Multiplicity of players Small size and low profitability make them unattractive targets Not difficult to get a gamma license Relatively low price of gamma and EB equipment

India radiation processing market Small and scattered Large predominance of in-house ethylene oxide for medical sterilization Low price of service Acquisitions unattractive Small size and low profitability of players Greenfield investment dominant approach Low price of gamma irradiators and cobalt-60 Ease to get a gamma license Constructions of gamma irradiators subsidised by government

What do mergers and acquisitions bring to users ? PROS ? …a single contractor worldwide, a unified QA system, backup…. CONS LESS CHOICE PRICE OF SERVICE LIKELY TO INCREASE MORE / FASTER RISK TO PUSH USERS TOWARDS IN-HOUSE SOLUTIONS

Final thought: for some OF THE employees of the acquired companies « And you promise to treat all our employees under the laws of the Geneva Convention ? »