- Saving its best, or at least biggest, deal for last in a year of heavy M&A activity, Swiss drug manufacturer Lonza disclosed on Thursday it would acquire Capsugel from private equity firm KKR & Co. for $5.5 billion.
- In a Dec. 15 statement, the buyer said it believes the deal will be accretive in the first full year after the deal's close, which is slated for the second quarter of 2017. Specifically, Lonza expects the acquisition will bring in CHF100 million ($97 million) annually in the long term, stemming mostly from synergies and an overlapping customer base.
- Capsugel makes a variety of capsules, such as hard, soft, liquid-filled and acid-resistant gel, for pharmaceutical developers. The target has 13 manufacturing sites worldwide, and brought in revenues of $750 million in 2010, the last full year Capsugel was part of a public company. A year later, a KKR affiliate agreed to acquire the unit from Pfizer for $2.38 billion.
Lonza has been working as of late to expand its pharmaceutical platform. Capsugel is another step in that direction, as it adds "a trusted brand with a large breadth of technologies and will expand the market reach of its contract development and manufacturing organization (CDMO) and products businesses," the company said in a Dec. 15 statement.
"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," Capsugel's CEO Guido Driessen said in the statement.
A big chunk of the Lonza's expansion plans have come through M&A. In 2016 alone, the company bought North Carolina-based Triangle Research Labs at the end of June for an unnamed sum, Benicia, CA-based InterHealth Nutraceuticals in August for $300 million, and made a pass at acquiring life science services provider Catalent, according to Reuters.
Lonza also added notches in its belt with a number of licensing deals – including a new one with research center Massachusetts Eye and Ear – an expanded agreement with Clovis Oncology, and a new, 14,000 square foot manufacturing plant in Basal, Switzerland.
Capsugel, while expected to be profitable down the line, is financially the hardest pill to swallow thus far.
To pay for the all-cash transaction, the Swiss acquirer is committing to $3.3 billion worth of debt financing from Bank of America Merrill Lynch and UBS, and issuing an additional 5 million shares of stock. Lonza's board will vote on the latter of those moves in April at the annual company meeting.
The high price of the deal proved a little difficult for investors to stomach. Lonza stock was down 6.5% to about $154 per share in Thursday morning trading.
Company executives, meanwhile, appeared more confident.
"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," Lonza CEO Richard Ridinger said in the statement. "The combined business will allow us to partner with our customers to help them bring highly differentiated products to market more quickly and efficiently."