Meda’s acquisition of Rottapharm helps both companies fulfil long-held ambitions. The Swedish company gets to beef itself up substantially – it is the latest in a string of purchases, and will help protect it against predatory US acquirers – while the family-owned Italian drug maker has finally achieved the valuation it wanted.
The total purchase price of SKr21.2bn ($3.1bn) values Rottapharm above the upper end of what it was trying to achieve at its recently failed IPO attempt. Meda estimates that there are respectable cost savings to be made and says these, plus the higher gross margins enjoyed by its target, justify the premium. Its investors seem to agree: shares rose 4.4% to SKr111.1 on the news.
The rise gives Meda a market cap of SKr33.6bn ($4.9bn); its shares have advanced 39% since mid-February when Mylan emerged as a suitor, and are trading close to record highs (Speciality pharma companies drive sector deal-making, April 29, 2014). The deal, which includes SKr3.3bn worth of stock, makes good use of its inflated share price.
Rottapharm generated revenues of €536m ($717m) in 2013 and made an adjusted EBITDA of €149m. The Swedish company, which will significantly grow its consumer healthcare division and emerging market presence in regions such as southeast Asia with the move, reported sales of $2bn last year.
The addition moves Meda substantially higher up the rankings of European speciality companies, potentially becoming number five in 2020 given that Shire has recently capitulated to AbbVie.
|European speciality pharma companies|
|Total revenues ($bn)|
|Les Laboratoires Servier||5.5||5.5|
|Meda + Rottapharm||2.7||3.7|
Meda estimates that it can make cost savings of SKr900m or $131m a year by 2016. This will help add 20% to earnings per share from this time. The extra debt raised to fund the remainder of the deal – SKr26bn – will be paid off in 2016, the company projects. The deal is also being funded by an equity rights issue, to raise SKr2bn.
“We are very confident we will realise these synergies. We have done this several times in the past,” Jörg-Thomas Dierks, chief executive of Meda, told EP Vantage.
Meda has long been a fairly acquisitive company but this is by far its biggest deal to date. Until now its largest transaction was the purchase of 3M’s pharma unit in 2007, for $840m.
The two companies have a lot of overlap in Europe, he said, while the higher gross margin that Rottapharm generates in what Meda describes as the Cx business will benefit the combined company. These products, such as a glucosamine supplement called Dona and a dyslipidaemia nutraceutical called Armolipid, are not reimbursed or prescribed but they tend to be recommended by physicians or chemists.
They enjoy a strong brand loyalty and pricing power, Mr Dierks said, and can be promoted by Meda’s existing sales force.
Rottapharm scrapped IPO plans earlier this month after failing to get what it wanted – a market cap of €1.45bn to €1.8bn. This valuation was apparently too rich for local investors, many of whom remain cautious about new issues.
With M&A activity in the speciality pharma sector showing no sign of waning, a profitable and willing seller like Rottapharm was never going to struggle to attract interest. And having recently fought off Mylan, Meda was no doubt a motivated buyer.
Still, Mr Dierks denies that the move was a reaction to predatory advances.
“Fear or pressure is never a good consultant on what to do. It has to serve your strategy. Since spring, we have looked at 150 possible targets and Rottapham fits our strategic objectives with prescription products, over-the-counter and a presence in emerging markets,” he said.
Acquisitions will remain a central part of the strategy, he added, repeating a previous aim to double sales in two to three years.
In this climate of buy or be bought, Meda clearly intends to continue writing the cheques.