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Strategies & Market Trends : Speculating in Takeover Targets
CTG 8.1000.0%Dec 3 4:00 PM EST

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From: richardred11/24/2017 7:02:31 PM
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Review of the Year: Pharma M&A

shows its staying power
Published in PharmaTimes magazine - December 2017



by
Tom Cowap
With macro drivers boosting the sector and a range of attractive themes driving interest, M&A in the industry remains buoyant Conditions have been ripe for M&A in the pharmaceutical sector in 2017. Low interest rates have provided cheap capital for both financial and trade buyers, while acting as a disincentive to keep large cash balances on reserve; the devaluation of the pound has heightened the attractions of the UK for international investors; and economic uncertainty has boosted the defensive pharma sector’s appeal.

At a global level, we’ve seen further blockbuster deals this year, led in the contract research organisation (CRO) space. UK private equity firm Pamplona paid $5 billion for Parexel; US CRO Covance acquired UK’s Chiltern for $1.2 billion; PE houses GTCR and Carlyle combined to take US CRO Albany Molecular Research private for more than $900 million; and Inc Research and Inventiv merged in a deal worth $4.6 billion.

In the UK though, M&A has once again been led by mid-market entrepreneurial businesses. Not only has international appetite for UK businesses continued and private equity (PE) increased investment, but we are also starting to see mid-market British businesses expanding abroad via acquisition.

One common theme has been interest in businesses that specialise in niche, value-added services, putting them in a strong position to benefit from big pharma’s search for new value drivers and the rise of infrastructure-light biotechs. This is a particular focus for PE, with deals such as Graphite Capital’s and Phoenix Private Equity’s investments in Random 42 and Sygnature Discovery respectively.

Random 42 and Sygnature may deliver different solutions but both provide value-added services to the pharmaceutical industry in non-traditional niches where there is little competition. Random 42 creates interactive experiences for the pharmaceutical and biotech industry through animation and virtual reality technologies, while Sygnature provides outsourced preclinical drug development and research services. This service-led delivery model, which relies less on ownership of a single drug or product, is highly attractive to PE investors.

The same principle, niche specialism, is also driving trade deals. For example, Clinigen acquired Quantum Pharma, who specialise in providing access to hard-to-get drugs, supplying hospitals with medicines that are not licensed in one market but are available elsewhere.

Meanwhile, the trends that are driving big pharma to outsource are creating opportunities for mid-market businesses too. Take Quotient Clinical, which provides an innovative CRO model it describes as “translational pharmaceutics”. The firm’s differentiated outsourced drug development model has secured it sufficient growth that it is now expanding overseas via acquisitions, including in the US this year of QS Pharma for £60 million and Seaview Research.

The themes that make mid-market specialists so attractive have also driven big pharma to diversify away from its core model to look for improved returns, including into more brand-led offerings. The leading Spanish generics manufacturer Laborotorios Cinfa for example, acquired UK-headquartered Natural Sante, a food supplements business.

The pharma sector continues to undergo structural change, creating opportunities for fast-moving, agile businesses. That will drive further M&A activity and investment.

Tom Cowap is principal, specialist in the pharmaceutical sector at Catalyst Corporate Finance. Look out for Catalysts’ Pharma Fast 50 in our March issue, which will look at companies likely to be sources of future M&A activity

http://www.pharmatimes.com/magazine/2017/december_2017/review_of_the_year_pharma_m_and_a_shows_its_staying_power




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