Redwood Toxicology Sold For 3.3x Revenue

The investment firm American Capital Strategies (Bethesda, MD) has paid $79.5 million for a 67% stake in Redwood Toxicology Laboratory (Santa Rosa, CA). Redwood’s management team, including chief executive and founder Bob Mount, owns the remaining 33%. The deal, which closed on February 27, put a value on Redwood of $119 million ($79.5M ÷ 67%=$119M), an amount that is equal to 3.3 times Redwood’s revenue of $36 million in 2005.

Mount, age 62, tells LE that he sold because he is nearing retirement and the price was right. He says that he will continue to manage Redwood for a few more years. With the backing of American Capital, Redwood Toxicology will become more aggressive in its sales and marketing efforts, and is now looking for acquisitions, adds Mount.

Redwood has three divisions. Its drug screening lab tests more than 30,000 urine specimens per day, primarily for prisons, jails, and drug rehab centers; annual revenue is $23 million. Redwood Biotech sells point-of-care drug test kits and had revenue of $12 million last year. And Redwood’s PerMaxim unit sells rapid tests for pregnancy, strep, fecal occult blood, etc. and has annual revenue of $1 million. Altogether, Redwood has 173 employees.

Mount says overall revenue at Redwood grew by 24% in 2005. Its fast-growing unit was Redwood Biotech, which increased by more than 30%. Sales were driven by the company’s patented RediCup, which has a panel of drug tests integrated into the screw-on top of the specimen cup. The rapid test is activated simply by turning the cup upside down, thus eliminating the chance for test administrators to come in contact with the urine specimen. Average sales price is about $4.50 per cup.