Pfizer seals $14bn Medivation deal

BY Richard Summerfield

In its largest deal since its $152bn merger with Allergan was terminated in April, pharmaceutical powerhouse Pfizer Inc has announced that it will acquire US drug manufacturer Medivation Inc – producer of the best selling cancer drug Xtandi – in a deal worth $14bn.

The transaction, according to a statement released by the firms, will see Pfizer pay around $81.50 a share in cash for the company which had been the subject of furious takeover speculation of late. Indeed, a number of other pharmaceutical companies made offers for Medivation in an auction after it rebuffed an offer of $9.3bn by French drug maker Sanofi. Rival US firms Merck & Co and Celgene are also believed to have pursued deals for Medivation since Sanofi’s offer proved unsuccessful; however, it was Pfizer that was able to clinch the deal.

Speculation around a potential deal for the company helped to double Medivation’s share price over the last few months. In February, its stock was trading at less than $30 per share. Although Medivation’s stock price has climbed recently, the agreed deal price will still see Pfizer pay a 21 percent premium on Medivation’s share price on Friday, the last trading day before the deal was announced.

Oncology related drugs have proved to be a popular deal driver in recent years and the success of Xtandi has also helped to send Medivation’s stock price soaring. Xtandi is the leading novel hormone therapy available in the US today and generated approximately $2.2bn in worldwide net sales over the past four quarters. Furthermore the drug is expected to generate $5.7bn in sales by 2020.

“The proposed acquisition of Medivation is expected to immediately accelerate revenue growth and drive overall earnings growth potential for Pfizer,” said Ian Read, chairman and chief executive of Pfizer. “The addition of Medivation will strengthen Pfizer’s Innovative Health business and accelerate its pathway to a leadership position in oncology, one of our key focus areas, which we believe will drive greater growth and scale of that business over the long-term. This transaction is another example of how we are effectively deploying our capital to generate attractive returns and create shareholder value.”

Though Xtandi is Medivation’s only marketed product, the company has a strong pipeline of other cancer drugs in late-stage clinical development. Potential breast cancer treatment talazoparib and a potential lymphoma drug will sit alongside Xtandi and a number of other oncology related products offered by the newly merged Pfizer who were slow out of the gates when it comes to cancer treatments. The company has been playing catch up in the oncology field and the deal for Medivation will go a long way toward closing the gap.

News: Pfizer boosts cancer drug roster with $14 billion Medivation deal

AIG to divest mortgage unit for $3.4bn

BY Richard Summerfield

American International Group Inc. (AIG), the largest commercial insurer in the United States and Canada, has announced that it has agreed a deal to sell its mortgage-guarantee unit to Arch Capital in a deal worth around $3.4bn, pending customary regulatory approvals. The deal is expected to close in either Q4 2016 or Q1 2017.

Under the terms of the deal, AIG will receive around $2.2bn in cash from the sale, $250m in Arch Capital's perpetual preferred stock and $975m in non-voting common-equivalent preferred stock from the sale of United Guaranty Corp (UGC).

The sale of the mortgage unit comes as AIG increases its efforts to return cash to its increasingly agitated shareholders. The company has come under considerable pressure from activist shareholder Carl Icahn, and as a result had agreed to pursue the sale of the mortgage unit, cut a number of jobs and sell its broker-dealer network. Mr Icahn had proposed splitting AIG into three distinct smaller companies.

According to a statement announcing the sale, the combination of Arch’s existing mortgage insurance business with UGC’s established business will create the largest private mortgage insurer in the world, based on insurance in-force, with a global footprint.

Constantine Iordanou, chairman and chief executive of Arch, noted: “We are extremely pleased to be able to expand our private mortgage insurance business through the acquisition of United Guaranty. Our mortgage insurance segment expands and complements our strengths in the specialty insurance and reinsurance businesses, which continue to be central to our global, diversified operations.”

The company will retain some aspects of its mortgage-insurance business under an existing agreement between UGC and AIG subsidiaries covering 2014 to 2016, and will therefore retain some of the earnings from the unit. UGC had been one of AIG’s most profitable units in recent years, and generated $350m in pretax operating income in the first half of 2016. AIG’s company-wide pretax income was around $2.57bn.

“We are excited about this deal and what it means to AIG and the talented professionals at UGC. It further streamlines AIG into a more focused insurer and enhances our capital position, in keeping with commitments AIG made to the market in early 2015 and restated earlier this year,” said Peter Hancock, president and chief executive of AIG. “The transaction also maintains AIG’s presence in a profitable market through a stake in a market leader that shares our focus on risk-based pricing and analytics as the foundation for our industry’s future. We are leaving UGC in the good hands of a forward looking management team.”

News: AIG to sell unit to Arch Capital for $3.4 billion

PE managers optimistic that deal and exit activity will expand in H2 2016 and beyond

BY Fraser Tennant

Private equity (PE) fund managers are predicting an increase in growth across the industry over the next 12 months, including an uptick in investor interest and exit activity, according to a new survey released this week by Preqin. 

The survey, a snapshot of the views of 187 PE fund managers by Preqin, found that two-thirds of those surveyed expect to see investors commit significantly more to the asset class over the next year.

Conversely, only 4 percent of survey respondents expect total assets under management to decrease during this time.

Additional survey finding include: (i) 47 percent of fund managers reported an increased appetite from investors in Europe, with significant interest also observed in North America (45 percent) and Asia (40 percent); (ii) respondents reported an increased appetite from family offices (58 percent) and public pension funds (41 percent) compared to 12 months ago, while there has also been increased interest shown by private pension funds and sovereign wealth funds; and (iii) valuations remain the biggest concern for PE fund managers in the present climate, with 48 percent believing that the biggest challenge facing the industry is deal pricing.  

“This latest survey shows that private equity fund managers are still seeing growing appetite from investors,” said Christopher Elvin, head of private equity products at Preqin. “The portfolio diversification and record returns provided by the industry as of late have continued to attract investors to the asset class. Although the fundraising market remains ever-more competitive, recent high fundraising levels indicate that capital is continuing to flow into the market.”

In terms of the investment by region analysis, the survey reveals that a higher proportion of PE fund managers based outside of North America and Europe are planning to put more capital to work in the coming year - with 43 percent indicating an intention to deploy significantly more capital and 35 percent planning to marginally increase their investments.

Mr Elvin concluded: “Given the positive fundraising environment and an expected uptick in exit activity, fund managers are predicting industry assets under management will continue to grow over the next 12 months. Although perennial concerns over pricing and deal valuations remain prominent, managers are confident of putting more capital to work over the next 12 months as they attempt to find well-priced assets.”

Report: Private Equity Spotlight - August 2016

Emerging market PE and VC investments outperform non-US developed counterpart in Q4 2015

BY Fraser Tennant

Emerging market private equity (PE) and venture capital (VC) investments outperformed their non-US developed market counterparts during the final quarter of 2015, according to a report released this week by Cambridge Associates.

The report, one of Cambridge Associates’ quarterly benchmarks indexes, attributes the strong performance of emerging markets to strong exit environments in both the European and Asian regions. The index also highlights a weak euro as being a factor in bringing down non-US developed market returns (when measured in US dollars).

"In Q4 2015, investors in emerging market PE and VC funds enjoyed the fourth-largest quarterly distribution in the history of the index," said Vish Ramaswami, managing director at Cambridge Associates. “2015 saw the index's second-highest full-year distribution. And although the index returned less last year than in 2014, strong performance by media and IT companies drove solid returns for private investors in emerging markets.”

Drilling down, the Cambridge Associates Emerging Markets PE and VC Index increased 5.1 percent for the quarter and 8.5 percent for the year, a drop of almost 6 percent from its double-digit 2014 year-end result. In comparison, the Global ex US (non-US developed) Markets PE and VC Index’ returned 2 percent in US dollar terms in Q4, bringing the return for the year to 5.7 percent, a marginal improvement over 2014.

"Distributions to investors in non-US developed market PE and VC funds outpaced contributions for the fifth consecutive year in 2015, reaching a record high,” said Andrea Auerbach, head of global investment research at Cambridge Associates. “These payouts largely benefited investors in funds launched in 2005 through 2008, 2010 and 2012, who received over 80 percent of distributions."

Media was by far the best-performing sector in emerging markets PE/VC in 4Q 2015, returning 30.2 percent for the quarter and 55.8 percent for the year to investors. The second-best performer (for the quarter) was found to be manufacturing with a 7.5 percent return, while IT posted a 21.2 percent return for the year. As far as jurisdictional sway is concerned, China dominates emerging markets PE and VC at present.

Cambridge Associates derives its emerging markets and non-US developed PE/VC indexes from data compiled from institutional quality funds raised between 1986 and 2015.

Report: Global ex US PE/VC Benchmark Commentary - Quarter and Year Ending December 31, 2015

Steinhoff and Mattress Firm get into bed together

BY Richard Summerfield

South African retailer Steinhoff International Holdings has taken its first tentative steps into the US market following the announcement that it will acquire Mattress Firm Holding Corp in a deal worth $3.8bn including debt.

Steinhoff has agreed to pay Mattress Firm shareholders $64.00 per share in cash for a total equity value of approximately $2.4bn, The company’s existing debt will see Steinhoff pay an enterprise value for Mattress Firm of approximately $3.8bn. The acquisition price represents a premium of 115 percent on Mattress Firm’s closing price of $29.74 per share at the close of trading on 5 August.

The deal is expected to close in the third quarter of 2016, the companies said. The transaction has been unanimously approved by the board of directors of Mattress Firm and the management and supervisory boards of Steinhoff.

Markus Jooste, CEO of Steinhoff said: “The boards of Steinhoff and its management team are enthusiastic about the opportunities this transaction creates. This transaction will allow Steinhoff to not only enter the U.S. market with an industry leading partner and a national supply chain, but it will also expand Steinhoff’s global market reach in the core product category of mattresses. The Mattress Firm brand and speciality retail concept are a strong complement to the Steinhoff group retail brand portfolio in the many geographies where the group operates.”

Steinhoff’s move for Mattress Firm is the latest in a series of deals completed by the company (in July, it agreed to pay nearly $800m for British discount chain Poundland), and will give the firm a footing in the US, with Steinhoff controlling around 25 percent of the country’s retail market for specialty mattresses. The company is already the world’s largest bed retailer. In Europe, Steinhoff already owns European home furnishings retailers Bensons for Beds and Conforama, a significant US operation of franchised and operated stores in 48 states. Mattress Firm has over 3500 retail outlets across the US as well as 75 distribution centres. The company generated $3.5bn in pro-forma sales last year.

In February, Mattress Firm reinforced its position as a leader in the US mattress retail market by completing a $780m merger with HMK Mattress Holdings LLC, the holding company of Sleepy's. Sleepy's was the second largest specialty mattress retailer in the US with over 1050 stores.

News: Steinhoff to buy Mattress Firm for $3.8 billion including debt