LONDON (Reuters) - Private equity group Cinven CINV.UL is buying family-owned niche pharmaceuticals business Amdipharm for 367 million pounds ($590 million), it said on Monday, as part of a plan to create a much larger producer of generic drugs worth as much as 2 billion pounds ($3 billion).
The aim is to merge Amdipharm with Mercury Pharma, which Cinven bought from rival private equity house HgCapital in August for 465 million pounds, and to expand the combined business.
"We absolutely want to buy more products from the larger pharmaceutical companies that are looking to tidy up their portfolios," said Cinven deal partner Supraj Rajagopalan in an telephone interview with Reuters.
"I certainly could see an end business which is more than twice the size of what it is today," Rajagopalan added.
Amdipharm was created in 2002, with a shift in the focus of big drug companies away from smaller and older products giving it an opportunity to snap up "legacy products" - typically off-patent generic drugs in niche disease areas.
After a string of acquisitions by its multi-millionaire founders Amdipharm now sells more than 50 products in over 80 countries with products including antibiotics as well as drugs for nausea, skin disease and thyroid problems.
Some 28 medicines currently marketed in the UK and worth an estimated 1 billion pounds are set to lose their patents by the end of this year, with a further 21 coming off patent in 2013, according to Economist Intelligence Unit.
Amdipharm's founders Vijay and Bhikhu Patel also own drugs distributor and marketer Waymade with lofty ambitions of seeing it rank alongside the biggest global pharma groups.
The brothers will retain a significant minority stake in the combined business, Cinven said.
The Cinven deal values Amdipharm at about nine times its annual earnings before interest, tax and amortization (EBITA), on a par with the earlier Mercury deal, Cinven's Rajagopalan said.
By putting the two businesses together and seeking out more deals and expanding sales, that valuation benchmark could grow, and match larger pharma deals often done on double-digit earnings multiples, Rajagopalan added.
Together with Mercury, the two businesses will generate annual revenues in excess of 200 million pounds, with Amdipharm's sales to more than 80 countries complementing Mercury's predominantly UK-focused customer base.
Cinven has operated a successful strategy of bolting companies together to make larger and more valuable groups, such as Dutch cable group Ziggo ZIGGO.AS which it and partner Warburg Pincus floated earlier this year.
It's the fourth deal from Cinven's fifth buyouts fund, for which the European group has gathered some 4 billion euros for deals, a person close of the firm said, giving significant firepower for any other acquisitions in the pharma sector.
The deal underscores the appeal of steady cash-flows from healthcare for private equity, reflecting the defensive nature of the drugs business.
Cinven owns private hospitals business Spire and diagnostics group Sebia and last year sold allergy testing business Phadia to Thermofisher for about 2.5 billion euros.
Jefferies was financial adviser to Cinven.
($1=0.6216 British pounds)
Additional reporting by Ben Hirschler and Anjuli Davis; Editing by Kylie MacLellan and Greg Mahlich