Laboratory technicians at LifeLabs register samples to be tested for COVID-19 upon receipt at the company’s laboratory in Surrey, British Columbia, on March 26, 2020.DARRYL DYKE/The Canadian Press
One of the country’s largest pension plans has put Canada’s largest medical testing company, LifeLabs Medical Laboratory Services, up for sale after building the business over 17 years, drawing interest from suitors based in the United States and Canada.
Last year, the Ontario Municipal Employees Retirement System (OMERS) hired investment banks to find a new owner for Toronto-based LifeLabs, according to four sources familiar with the sale process. Two of the sources said OMERS has chosen New York-based Evercore Group LLC to manage the process and has also brought in a Canadian bank.
OMERS has invested more than $2.5 billion in LifeLabs, and two of the sources said the asset manager wants a premium valuation for the business, well above the capital OMERS has put into acquisitions.
LifeLabs attracted multiple suitors, with two healthcare companies emerging as the leading contenders, three of the sources said.
One is Andlauer Healthcare Group, based in Vaughan, Ont., which is run by founder and CEO Michael Andlauer, who led a group of investors that recently purchased the Ottawa Senators of the National Hockey League. Andlauer Healthcare is a medical logistics business delivering drugs to pharmacies and hospitals, with a market capitalization of $1.7 billion.
The second is Secaucus, New Jersey-based Quest Diagnostics Inc., a leading US clinical laboratory company with a market capitalization of US$15.2 billion. In recent years, Quest has used acquisitions to expand in the US and internationally.
The Globe and Mail did not name the sources because their employers would not allow them to discuss potential transactions.
OMERS Infrastructure has said “categorically” it is not in late-stage discussions with any party.
“As a long-term investor, we are always evaluating business opportunities in our portfolio. There have been some preliminary discussions with multiple parties that have expressed interest, which may or may not lead to a transaction,” OMERS Infrastructure said in an emailed statement.
Spokesmen for Quest Diagnostics, Andlauer Healthcare and Evercore did not respond to requests for comment Tuesday. LifeLabs has referred inquiries about a possible transaction to OMERS.
The current sale process is not the first time OMERS has brought LifeLabs to market. The pension fund manager has quietly tried to sell LifeLabs in previous processes and has been unable to find a buyer, two of the sources said. There can be no assurance that the sale will be completed or that OMERS will find a buyer willing to pay what it believes to be an acceptable price for LifeLabs.
The current auction could determine whether LifeLabs remains in Canadian hands if Andlauer prevails, or whether American healthcare companies take even more control of an already concentrated market for laboratory tests in Canada.
LifeLabs has 5,700 employees who perform 112 million tests each year in laboratories in three provinces, Ontario, British Columbia and Saskatchewan. The company operates 382 collection centers and 16 laboratories.
LifeLabs’ main domestic competitor, Dynacare, is owned by one of America’s largest medical testing companies, Laboratory Corp. of America Holdings, known as Labcorp. Dynacare has 2,400 employees and 200 collection centers and laboratories in four provinces – Alberta, Manitoba, Ontario and Quebec. Burlington, North Carolina-based Labcorp acquired Dynacare for US$480 million in 2002.
OMERS began building its diagnostics business in 2007, when its infrastructure arm acquired MDS Diagnostic Services for $1.33 billion from another Toronto-based company, MDS Inc., and rebranded the company LifeLabs. Five years later, LifeLabs expanded its platform to British Columbia by purchasing physician-owned BC Biomedical Laboratories Inc.
In 2013, LifeLabs went national largest medical testing business—based on the number of tests it performs—when it bought CML Healthcare Inc. for $1.2 billion. Quest also bid unsuccessfully for CML at the time, according to one of the sources who worked on the deal.
If OMERS sells LifeLabs, it would be the asset manager’s second sale of a medical testing business in the past year. Last August, OMERS and Labcorp sold a jointly owned Alberta company, Dynalife Medical Labs, to the provincial government’s Alberta Precision Laboratories.
Quest has expanded into the US, Europe and South America over the past two decades through a series of acquisitions. Its 50,000 employees now provide the medical services that form the core of LifeLabs’ business, with a portfolio of more than 3,500 available tests.
Andlauer Healthcare, founded in 1991, focuses on transportation and logistics, moving healthcare products such as COVID-19 vaccines from pharmaceutical companies to patients, hospitals and retailers. Two-thirds of its $479 million in revenue in the first nine months of 2023 came from its trucking business. If Andlauer prevails, it would signal that it is branching out into a new part of the health care industry.
OMERS’ presentation to potential buyers described LifeLabs as an investment in the infrastructure sector, with reliable revenue from providing medical services to an aging population, according to three of the sources. In 2022, LifeLabs launched new tests by partnering with Natera Inc., which focuses on DNA testing, to provide personalized cancer testing.
LifeLabs’ main customers are provincial ministries of health and private insurers, who are pushing testing centers and other medical providers to cut costs. Any potential buyer would have to factor the willingness of governments and the insurance industry to continue paying for medical tests into the price they offer for LifeLabs, the sources said.
OMERS oversees $127.4 billion in assets for firefighters, police officers and other government employees. LifeLabs is part of the pension fund’s $34 billion infrastructure portfolio. OMERS routinely recycles capital by selling long-term holdings, such as medical testing businesses built through acquisitions, and plows the proceeds back into new investments.
