The Health Care M&A Monthly: Watson Buys Actavis--

Takes Over Number Three Spot In Generic Pharma

 
The Great Recession is the gift that keeps on giving. The market plunge beginning in 2007, coupled with the Credit Crunch of 2008-09, raised the level of uncertainty, risk and, therefore, opportunity in the health care M&A market. Companies with sufficient cash on hand could—and did—make deals at very attractive valuations, witness Pfizer’s (NYSE: PFE) $68.0 billion acquisition of Wyeth in early 2009 at just 2.9x revenue.  This month saw yet another pharma deal that is rooted in the Great Recession: Watson Pharmaceuticals (NYSE: WPI) is paying $6.0 billion to buy Actavis Group.


Based in Parsippany, New Jersey, Watson Pharmaceuticals is a major generic pharmaceutical company. No stranger to the M&A market, WPI has grown both organically and through acquisition. For example, in 2006, the company paid $1.9 billion for Andrx Corporation and in 2009, it paid $1.75 billion for The Arrow Group. WPI paid 1.7x revenue in the first, and 2.7x revenue in the second deal.  As a result of these and a half-dozen other acquisitions, on a trailing 12-month basis, WPI generated revenue of $4.6 billion, EBITDA of $1.1 billion and net income of $261.0 million.


Based in Zug, Switzerland, Actavis Group is a generic pharma with a presence in 40 countries and a portfolio of over 1,000 products. In 2011, the company generated revenue of $2.5 billion and EBITDA of $397.0 million. Our long-time readers will know that Actavis has a more colorful history than this description suggests. Back in the day, the company was based in Iceland and listed on the Icelandic stock exchange. During the boom of 2005-06, Actavis racked up nine acquisitions for about $1.9 billion, at a time when its annual revenue was about €360.0 million ($464.0 million). Then in 2007, the company agreed to be taken private. Perhaps the debt it had accumulated in its rapid-fire acquisition program contributed to the decision to sell. And perhaps being in Iceland, the first casualty of the global financial meltdown, hastened the deal. In his informative and entertaining book Boomerang, Michael Lewis asks how centuries of tradition in fisheries prepared Icelanders to become such wheelers and dealers in the financial services market. In retrospect, it looks like it didn’t. In the event, Novator eignarhaldfelag, an Icelandic investment fund owned by billionaire Thor Bjorgolfsson, bought a 61.5% stake in Actavis for $3.1 billion. For a 100% interest, the price was $5.0 billion, the price to revenue multiple 2.4x and the price to EBITDA multiple 11.4x. The company was delisted on July 24, 2007. That, however, was not the end of its woeful saga. In 2008, when the Icelandic bank Lansbanki Islands collapsed, it wiped out much of Mr. Bjorgolfsson’s wealth, necessitating a partner to step in and save Actavis..........Want to read more? Click here for a free trial to The Health Care M&A Information Source and download the current issue today