The Health Care M&A Monthly: Takeda Buys Nycomed--

Pays $13.6 Billion To Buy Into Emerging Markets

 
After coyly denying its intentions for a few weeks, Japan’s Takeda Pharmaceutical Co. (T: 4502) announced that it is buying Nycomed from its private equity owners for €9.6 billion ($13.6 billion). Based in Switzerland, Nycomed sells brand and OTC pharmaceutical products, generating annual revenue of $3.9  billion and EBITDA of $1.2 billion. What enticed Takeda is the fact that Nycomed has sales in over 100 countries so its acquisition will increase the buyer’s exposure to emerging markets and diversify its revenue sources away from the static if not stagnant Japanese domestic market.
Based in Osaka, Takeda is Japan’s largest pharma company, with annual revenue of $13.4 billion and net income of $4.1 billion. Like others in its cohort, the company is faced with poor growth prospects in Japan, particularly after the country’s recent set of natural disasters, and it is now looking for growth opportunities in the greener pastures of emerging markets.

Headquartered in Zurich, Nycomed derived 50% of its revenue from Europe, 39% from emerging markets and the remainder from the rest of the world in its most recent fiscal year. It is anticipated that by 2015, 60% of its revenue will come from emerging markets. The fact Nycomed has a foot in both the established and the emerging markets likely reassured the conservative Takeda that Nycomed can speak the language of the developed world and also knows how to manage risk in the developing world. The deal gives Takeda Nycomed’s top-selling drug Actos, access to the lung disease drug Daxas, recently approved in the United States, and a portfolio of OTC consumer drugs. The deal is valued at 3.4x revenue and 11.3x EBITDA.

Excluded from this deal is Nycomed’s U.S. dermatology business, which will remain in the hands of the company’s private equity owners, including Nordic Capital (with a 41% ownership interest), DLJ Merchant Banking Partners (25.6%), Coller International Capital (9.7%) and Avista Capital Partners (8.9%).

Analysts are far from blessing this deal. Takeda, they carp, does not merit investors’ backing. Over the past five years owning Takeda stock has lost investors nearly two-fifths of their money. As against Takeda’s 39% drop, during the same period, Pfizer (NYSE: PFE) shareholders saw a total return of 19%; GlaxoSmithKline (NYSE: GSK) shareholders, an 11% return. What this indicates is that the company sorely needs growth. Still, Michael Obuschowski, CIO at First Empire Asset Management, sees the acquisition as a “traditional knee-jerk reaction of a large pharmaceutical company without much growth.” Some question Takeda’s record in the M&A market, citing the $8.8 billion acquisition of Millennium Pharmaceuticals in 2008, which is claimed to have lost Takeda 27% in returns. Not so fast. Given the Great Recession, we doubt that anyone, no matter the pro forma calculations they invoke, can establish with any certainty a causal link between that acquisition and a loss in returns. Still others grouse that Takeda is paying too much for Nycomed. However, for the 21 pharma deals in the past three years with prices of $1.0 billion or more, the average price to EBITDA multiple is 12.4x; the median, 9.8x...Want to read more? Click here for a free trial to The Health Care M&A Monthly and download the current issue today