JLL sees roll-up potential for pharma services after $2.6B deal

Thu Nov 21, 2013 10:39am EST

Nov 21 (Buyouts Magazine) - JLL Partners co-founder Paul S. Levy is expecting more acquisitions after the firm closed a $2.6 billion carve-out transaction to combine its Patheon Inc portfolio company with Dutch-based DSM's pharmaceutical unit.

The deal drew $200 million in co-investments from the New York firm's limited partners.

Levy told Buyouts the transaction resulted from talks between the two companies' management teams, with no formal auction process. The combined company will rank as the largest in the pharmaceutical services business, he said.

The company will be named after the acquisition closes as expected next year, he said. JLL will hold a 51 percent stake, with DSM retaining 49 percent.

"The pharmaceutical manufacturing industry is highly fragmented," Levy said. "We'd like to think we'll have some good opportunities to build the business through some modestly-sized acquisitions over the years."

Levy said JLL Partners has no plans to take the combined company public. JLL tapped capital mostly from JLL Partners Fund VI LP, with some contribution from JLL Fund V for its $489 million contribution.

JLL, a mid-market buyout shop, reached beyond its average $150 million check per deal, partly out of faith in Patheon Inc CEO Jim Mullen's ability to run the combined company. Mullen joined Patheon, a listed company on the Toronto Exchange, in 2011 after heading up Biogen, where he oversaw the merger of Biogen and Idec that created Biogen Idec. Patheon will go private when the deal closes.

"Running a $2 billion revenue business for Jim Mullen is not a new challenge," Levy said. "We've had a terrific working experience with Jim. He's proven his turnaround experience and so we feel comfortable with him. And we see some significant opportunities with the new assets we're acquiring, to improve those as well."

JLL, which is marking its 25th anniversary this year, invested in Patheon in 2007. Since then, the firm has increased its EBITDA to a run rate of $190 million from $70 million, on a combination of organic growth and acquisitions.

Patheon provides drug development and manufacturing outsourcing services to the pharmaceutical, biotechnology, and specialty pharmaceutical industries, as well as selling pharmaceutical development services.

DSM's Pharmaceutical Products unit provides customer manufacturing services, including research and development, clinical trials, commercial production and packaging. The combined firm is being billed as a leading global contract development and manufacturing organization with projected sales of around $2 billion.

Under the terms of the deal, JLL will pay $489 million in cash to the combined company, and DSM will contribute DSM Pharmaceutical Products and receive a note for $200 million.

DSM Pharmaceutical Products will be valued at $670 million. The combined company, which is being called NewCo for now, will acquire Patheon for $9.32 per share in cash, resulting in a total enterprise value for Patheon of about $2 billion.

On the deal front, Stephan Doboczky, a member of the managing board at DSM, said the firm may take a small breather after nearly $3 billion in acquisitions in the last three years as it repositioned itself in the nutrition and advanced materials arena.

"We may do deals in the future, but we're focusing on integration right now rather than a shopping spree," he said.

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