Shares of Concateno, the drug and alcohol testing group, soared yesterday after the company said that it had received several takeover approaches.

The company, which conducts about eight million drugs tests each year in prisons and for legal proceedings, said that it had received a number of expressions of interest and that it would consider its options alongside a possible sale of the company.

It is understood that at this stage approaches from private equity and trade buyers are preliminary and that a potential price has yet to be suggested to the company, which has appointed UBS to advise on any deal. However, the company is valued at £130 million.

Concateno was set up and backed by Marwyn Capital, an investment fund with a record of establishing cash shells. Previously it sold Inspicio, a tester of oil and foods, to 3i, the private equity group.

Concateno was listed on the Alternative Investment Market in 2005 and intended to invest in water assets. It soon changed its agenda to focus on buying alcohol and drug- testing companies as new regulations requiring tests came into force and the values of water assets became too high.

The group has made several acquisitions, including Medscreen, a provider of drug and alcohol abuse testing in the workplace that generates legally admissible evidence, in November 2006; TrichoTech, a hair-testing provider, in February last year; and most recently Cozart, a medical diagnostics company specialising in detecting the use of illegal drugs, last September.

It operates three laboratories in Britain - at Canary Wharf, Abingdon and Cardiff - and has a manufacturing facility in Spain.

The company could be seen as an ideal springboard for American testing companies to enter the European market, given its high-profile contracts with the Prison Service and several airlines to test their staff.

The European substance abuse testing market is fragmented, comprising numerous niche players. In the United States, sector leaders such as Quest Diagnostics and Inverness Medical dominate a more developed market.

The level of sophistication to Concateno's testing, which can detect alchohol and drug use over a six-month period from analysing one strand of hair, is also likely to prove attractive.

The company has managed to reduce costs through synergies and is believed to have renegotiated its largest contract with the Home Office with higher margins.

Concateno has also attracted attention recently for its trials of a roadside drug tester in Europe, as part of a joint venture with Philips, the Dutch group,that is expected to go on sale next year.

Although no contracts have been signed, some European governments are interested in drug testing alongside the more common roadside Breathalyser tests for alcohol.

Interim results for the six months to June 30 will be announced on September 8. Shares in the company, which swung to a pre-tax profit of £300,000 in 2007 from a loss of £800,000 the previous year, closed up 28p at 163p.

Testing times

— Drug testing is becoming more widespread in industry and sport, and even in some public schools

— The most common method is to test a sample of urine. Saliva or blood tests detect drugs that have been taken in the past 24 hours. Blood tests are less common because they are expensive and invasive

— Urine test shows a history for most drug groups of between one to four days

— Traces of most drug groups disappear quickly in blood, saliva and urine, but remain trapped in hair as a permanent record

— Hair analysis typically provides a profile of drug use for between one week and six months. However, hair tests are more difficult and can be less reliable than urine testing

Source: DrugScope

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