(Reuters) - Drug distributor AmerisourceBergen Corp agreed to buy PharMEDium Healthcare Holdings Inc for $2.58 billion from private equity firm Clayton, Dubilier & Rice, expanding its business of supplying compounded drugs to hospitals.
Compounding is a process in which pharma products are diluted to create doses that are not sold commercially.
Increased regulatory oversight following a fungal meningitis outbreak at a compounding pharmacy in 2012 has escalated the costs for hospitals to produce compounded products internally, boosting demand for large-scale firms such as PharMEDium.
“PharMEDium brings ABC a complementary service line that is undergoing a growth renaissance as hospitals more aggressively outsource compounded sterile needs in wake of new government regulations,” Baird Equity Research analyst Eric Coldwell wrote in a note.
Lake Forest, Illinois-based PharMEDium provides compounded intravenous and local anesthesia products to about 3,000 hospitals in the United States.
Clayton, Dubilier & Rice acquired PharMEDium in January 2014. While no financial terms were disclosed, media reports said the deal was done at around a $900 million enterprise valuation.
PharMEDium filed for a $100 million IPO in August, planning to list on the New York Stock Exchange.
AmerisourceBergen has been focusing on M&As to expand its product offerings. In January, the company bought MWI Veterinary for $2.5 billion to expand into animal health.
The PharMEDium acquisition is expected to add 22-26 cents to AmerisourceBergen’s adjusted earnings per share in 2016 and generate savings of about $30 million by 2018, the company said on Tuesday.
Morgan Stanley is the financial adviser to AmerisourceBergen, while J.P. Morgan Securities LLC and Credit Suisse advised PharMEDium.
AmerisourceBergen’s shares closed down 2 percent at $93.03 on the New York Stock Exchange on Tuesday.
Reporting by Amrutha Penumudi in Bengaluru; Editing by Sriraj Kalluvila