A Covid-19 threat to business acquisitions

20 key healthcare transactions, most struck before the Covid-19 pandemic hit, have yet to be formally completed.

Analysis

Even if the coronavirus pandemic wasn’t directly to blame for today’s scrapping of Aurobindo’s $900m buyout of Novartis’s generics brands it might have been the straw that broke the camel’s back. How many other pending acquisitions might face a similar fate?

To answer the question Vantage analysed open M&A deals on EvaluatePharma, and identified 20 healthcare-related transactions dating back to November 2018 that have been announced but have not yet been completed. Clearly not all risk being scrapped, but at the very least a delay or renegotiation are scenarios investors must now consider.

In terms of value three pending transactions stand out: Abbvie’s $63bn buyout of Allergan, Stryker’s $5.4bn bid for Wright Medical, and UCB’s pending acquisition of Ra Pharmaceuticals, worth $2.1bn.

The first is due to close in May after Abbvie agreed with the US FTC to divest brazikumab to Astrazeneca, and Zenpep and Viokace to Nestlé. For it to be completed on time relies on finalisation of paperwork, which during a global lockdown cannot be dismissed as a mere formality.

The Stryker/Wright deal is on shakier ground; after drawing the attention of the FTC the companies looked like struggling to meet a second half completion date – and that was before Covid-19 hit the west. The Ra takeover was to have closed in the first quarter, but as of today Ra remains listed on Nasdaq.

Selected pending acquisitions in healthcare
Announced Acquirer Target Target's domicile Value ($m) Note
17 Mar 2020 Arya Sciences Immatics Germany 350 To close Q2 2020
16 Mar 2020 Acelrx Tetraphase US 27 Various conditions
15 Mar 2020 Advanz Pharma Correvio Pharma Canada 76 To close Q2 2020
3 Mar 2020 Thermo Fisher Qiagen The Netherlands 11,500 To close H1 2021
2 Mar 2020 Gilead Forty Seven US 4,900 To close Q2 2020
2 Mar 2020 Hypera Pharma Certain Takeda brands C/S America 825 To close H2 2020
19 Feb 2020 Meridian Bioscience Exalenz Bioscience Israel 49 To close Q2 2020
12 Feb 2020 Dr Reddy's Certain Wockhardt generics activities India 259 To close by mid-2020
11 Feb 2020 Ligand North Carolina assets of Icagen US 40 To close Apr 2020
21 Jan 2020 MD Anderson Bellicum's Houston facility US 15 Was to have closed Q1 2020
16 Jan 2020 Biontech Neon Therapeutics US 67 To close Q2 2020
18 Dec 2019 Fujifilm Hitachi’s imaging biz Japan 1,633 To close Jul 2020
12 Dec 2019 Altaris Capital 3M's drug delivery biz UK 650 To close H1 2020
4 Nov 2019 Stryker Wright Medical US 5,400 H2 2020 close, but FTC raised questions
10 Oct 2019 UCB Ra Pharmaceuticals US 2,100 Was to have closed Q1 2020
2 Oct 2019 Lantheus Holdings Progenics US 641 Terms amended Feb 2020
25 Jun 2019 Abbvie Allergan Ireland 63,000 To close May after antitrust divestment
18 Apr 2019 Canopy Growth Acreage Holdings US 3,400 Open as at Apr 2020
17 Apr 2019 Echo Pharmaceuticals Samco Gold UK 45 Reverse takeover, open as at Jan 2020
13 Nov 2018 Cipla Avenue Therapeutics US 180 Buying remaining 67% depends on US approval of IV tramadol
Source: EvaluatePharma & company filings.

The more recent deals in this analysis, such as Gilead’s takeout of Forty Seven and Thermo Fisher's of Qiagen, will not necessarily be under threat since they were signed during the reality of Covid-19. The extent of the threat was perhaps not yet fully understood, however.

But for a typical pending transaction perhaps the biggest worry is that the pandemic will lead to a lengthy delay, by the end of which the target business’s valuation will have departed from the reality that had existed at the time the deal was struck.

The Novartis/Aurobindo termination could be a case in point. That deal, involving the Indian company paying $900m for some 300 US oral and dermatology brands in the Sandoz portfolio, had been signed all the way back in September 2018; 14 months later the FTC asked the companies for more information.

Today the deal was terminated by mutual agreement. The reason given was that FTC approval was not obtained within expected timelines, implying that it was no longer realistic to rely on a price agreed on so long ago. Covid-19 was not cited, but the prospect of it delaying completion even further cannot have helped.

Amendments?

Given the break fee that most deals carry, terminating by mutual agreement is a blessing. Failing that, the terms of a pending transaction could be amended to suit the new reality, but not without much negotiation and legal expense.

Also interesting is the imaging group Lantheus’s proposed takeover of the oncology company Progenics. That deal was struck last October, but in February its terms were amended to give Progenics holders a greater share of the combined entity. And today the Covid-19 lockdown caused the investor votes on the transaction to be postponed by two months to June.

This is the new reality that shareholders awaiting a takeover dividend have to contend with.

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