By Ricardo Mühle, Felix Paul Schäfer and Massimiliano Marchisio
|Date||October 1st 2018|
|Type of transaction||Public delisting tender offer|
|Valuation||15-15.5x LTM 2018 June EBITDA of c. €410m|
|Bidder||Cinven-Bain Capital consortium|
|Target company (sector)
|STADA AG, “STADA” (Medical – Pharmaceuticals)
FY17 Rev. / EBITDA: €2.3bn / €0.4bn (17.4% margin)
|Advisors (first bid)
Advisors (second bid)
|Evercore, PWP, Deutsche Bank (sell-side)
JP Morgan, Jefferies, Barclays, Rothschild, UBS (buy-side)
JP Morgan (buy-side)
|Rationale||STADA has a leading position in the pharmaceuticals space with potential for value appreciation via organisational changes, operational efficiencies, M&A build-ups and concentration of product portfolio|
August 16th 2017 – Cinven and Bain jointly announced the successful takeover of 63.87% of STADA, initially valuing the German drug maker at €5.3bn, making it the largest buyout in this sector in over four years. One year after, the two PE giants acquired a further 13.5% stake in the company and in October 2018 decided to launch a final public tender offer on Stada’s remaining shares.
HOW IT ALL STARTED? – THE FIRST ACT AND BIDDING WAR
- May 2016 – the starting points for the STADA acquisition were the “informal” talks between STADA, the London-based private equity firm CVC Capital Partners and the activist investor, Active Ownership Capital.
- February 2017 – these talks led to the start of a competitive process and two non-binding offers were received from Cinven/Bain and Advent International/Permira.
- April 2017 – the Cinven-Bain consortium emerged as the winner of the bidding war with an offer worth €66.00 per share (€65.28 + €0.72 dividends per share). However, by June 2017 the Cinven-Bain offer did not reach the minimum acceptance threshold and eventually expired.
- August 2017 – Cinven/Bain reinitiated the voluntary public takeover, increasing the offer price by €0.25 to €66.25, leading to the acquisition of 63.87% of STADA for €5.3bn (2.4x FY17A Revenue, 13.0x FY17A EBITDA).
THE SECOND ACT: SUCCESSFUL BIDS AND DELISTING
The offer on the remaining outstanding shares was an all-cash bid equal to €81.83 per STADA share, representing a premium of approximately 24% on the offer price per STADA share during the successful takeover offer in 2017 and a premium of 0.3% over STADA closing share price of €81.12, one day prior to announcement (28 September 2018). Simultaneously, Elliott Management, the famous activist hedge fund, agreed to sell its stake in the company. The combined offers value the entire business between €6-6.5bn (15-15.5x June 2018 LTM EBITDA).
Private equity firms are typically not interested in participating in a firm’s administration for a very long time. However, this won’t be a touch-and-go operation.
Both PE firms have a consistent track record of growing companies through their global networks, having successfully invested in businesses for over 30 years and have expanded many of these through buy-and-build strategies.
Mr. Weidenfels – STADA’s CEO – in June 2016, outlined two key objectives for the company: “commit to a more focused strategy of concentrating the product portfolio on performing branded and generic drugs with clear growth potential. He also underlined the importance of focusing on costs reduction, particularly with regards to COGS, as well as simplifying group and operating structures”.
A private equity ownership could now accelerate the reaching of those goals. Moreover, Bain and Cinven share the strategic objective to strengthen STADA’s position as a global healthcare company and could support investments in new products, organic expansion and, more likely, accelerating its growth through bolt-on acquisitions.
What’s certain, is that the implementation of their strategy will take time, efforts and additional capital to realize STADA’s full potential. But, if the business model works, volume growth and consequent economies of scale would reward both the company and its investors.
ESCP PE – TEAM VIEW:
The STADA deal is very attractive due to its “uniqueness”. Private equity firms tend to be reluctant to invest in pure drug makers pharmaceutical companies due to the very high structural valuation of the sector and extremely strong competition potentially arising from strategic buyers. This successful story on the one hand is a clear indicator of the increasing attractiveness for drug makers (stable and recurring cash flows; favourable industry trends; multiple areas to create value and high margins), while on the other hand, is an indicator for the massive amount of dry powder private equity firms hold in their pockets (see graph 2) and lack of outstanding assets available on the market. The tender offer made by the Cinven and Bain a year after the acquisition of 63.87% is a logical step, needed to take the company private and becoming the sole shareholder. Being the sole majority shareholder was a necessary step for Cinven and Bain to have full control over the business, exploit operational efficiencies and implement the proposed growth plan to be able to generate an attractive return for its LPs.
An obvious risk in the STADA buyout is the high price Cinven and Bain decided to pay (around 15x based on LTM 2018 June EBITDA of c. €410m), which could potentially lower returns at exit, especially in a downturn macroeconomic scenario. However, with multiples continuing to rise and the opportunity for STADA to strengthen its position as a global player (STADA is expected to grow organically but also through acquiring complementing businesses) the deal seems promising. For comparative purposes, larger generics listed companies like Teva, Mylan and Aspen Pharmaceuticals are trading at multiples around 9x-10x EBITDA, and, earlier this year, Zentiva was acquired by Advent at 12-12.5x.
Graph 1: Healthcare & Pharmaceuticals – Trading multiples over the last 12 quarters (Source: PWC eValuation 2018).
Graph 2: Increase of Dry power of GPs (Source: McKinsey Global Private Markets Review (2018). The rise and rise of private markets.
About STADA Arzneimittel AG is a Germany-based pharmaceutical company engaged in development and commercialization generic and branded of pharmaceutical products. Its best-selling products are generic Viagra and Grippostad C.
About Cinven Partners LLP, founded 1988, is a London-based private equity firm focused on building European and global companies. Its funds invest in six key sectors: Healthcare, Business Services, Consumer, Financial Services, Industrials, and Technology, Media and Telecommunications (TMT). Today, Cinven has over €15.0bn in AuM.
About Bain Capital Private Equity, LP, founded 1984, is a leading international private equity and alternative investment firm, investing across asset classes including credit, private equity, public equity, venture capital and real estate. Its funds invest in industries including healthcare, consumer, financial & business services, industrials and technology. Today, Bain Capital has over €91.0bn in AuM.
- Cinven (2017); https://www.cinven.com/media/news/170818-takeover-offer-of-bain-capital-and-cinven-for-stada-successful/
- FinancialTimes (2017); https://www.ft.com/content/79c33100-8406-11e7-94e2-c5b903247afd
- Handelsblatt (2016); https://www.handelsblatt.com/finanzen/maerkte/aktien/ermittlungen-gegen-stada-investor-bafin-nimmt-aoc-ins-visier/13943498.html?ticket=ST-3600799-qGmCJ0VOG0EnzU7GNPNO-ap5
- Mergermarket (2017); Deal ID: 835776
- Mergermarket (2018); Deal ID: 950146
- Reuters (2018); https://www.reuters.com/article/us-stada-m-a-bain/bain-cinven-make-higher-offer-for-rest-of-generics-maker-stada-idUSKCN1MB2NR
- STADA (2018); https://www.stada.com/press/press-releases/detail-view/news/detail/News/stada-invites-the-holders-of-the-stada-bond-to-participate-in-the-bondholders-meeting-and-to-vote-i.html
- The Wall Street Journal (2017); https://www.wsj.com/articles/german-drugmaker-stada-supports-takeover-offer-from-bain-capital-cinven-1491804550