Lonza Group AG to buy Capsugel from KKR & Co for $5.5bn

February 2017  |  DEALFRONT  |  PRIVATE EQUITY & VENTURE CAPITAL

 

Financier Worldwide Magazine

February 2017 Issue

February 2017 Issue


Lonza Group AG agreed to acquire Capsugel, a New Jersey-based maker of drug capsules, from private equity giant KKR & Co., in a deal valued at $3.5bn, excluding debt refinancing of around $2bn. According to a statement announcing the deal, the transaction is expected to close in the second quarter of 2017.

Lonza expects the deal for Capsugel to boost the company’s earnings and accelerate growth during the first full year after closing. Lonza produces a wide range of chemical, healthcare and personal care products, and has been searching for complementary companies to acquire for some time. By agreeing a deal for Capsugel, the company hopes to broaden the range of manufacturing and development services it can offer to drug manufacturers. Lonza has completed a number of acquisitions in recent years, particularly in the US. The firm has been buying up small biopharmaceutical companies, and acquired Arch Chemicals for $1.4bn in 2011.

In a statement announcing the deal, Richard Ridinger, chief executive of Lonza, noted, “The acquisition of Capsugel meets Lonza’s strategic and financial goals. It accelerates our healthcare continuum strategy by giving us broader exposure to the fast-growing pharma and consumer healthcare markets. We expect the transaction to be accretive to our core earnings per share in the first full year post closing.” He added: “This new integrated approach will benefit our customers, who will gain from the simplicity and efficiency of working with one company that can provide world-leading support from APIs to excipients and dosage forms. The combined business will allow us to partner with our customers to help them bring highly differentiated products to market more quickly and efficiently.”

Guido Driesen, president and chief executive of Capsugel, said, “This transaction brings together two leading companies that share a common vision – to deliver real value to customers by accelerating their ability to develop and commercialise innovative pharmaceutical and healthcare products. The combination of our complementary technology platforms will put us in a strong position to benefit from evolving trends in the pharma and consumer healthcare markets. Both companies enjoy a strong quality and regulatory track record, and we believe that the combination enables us to provide the most complete set of tailored and integrated solutions for our customers. We look forward to bringing together our talented teams to deliver science- and engineering-based solutions to customers for the benefit of the patients and consumers who use their products. I am personally committed to making this integration a success.”

KKR acquired Capsugel from Pfizer in 2011 for $2.4bn, investing $1.1bn of equity into the deal. Rumours that KKR was hoping to sell the company had been circling for some time. The deal represents a good return for the private equity firm, with a total gain of $4.1bn, including $850m in dividends extracted during KKR’s ownership of the firm. The internal rate of return will be 36 percent.

Pete Stavros, a member of KKR and head of the industrials investing team, said, “Since acquiring Capsugel five years ago, we have supported Guido and his management team in repositioning the company from a global leader in hard capsules into a specialty CDMO. Capsugel has grown significantly by investing in innovation, strategic acquisitions, product development and geographic expansion. Now Capsugel is well positioned for the next phase of its growth, and we look forward to its continued success as a part of Lonza.”

KKR’s return on the deal is believed to be the fourth largest it has achieved on a leveraged buyout over the last decade. Only KKR’s exits from hospital operator HCA Holdings Inc, discount retailer Dollar General Corp and UK retailer Alliance Boots Plc earned the firm more.

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BY

Richard Summerfield


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