The Health Care M&A Monthly: $4.1 Billion Private Equity Deal--
Bristol-Myers Sells ConvaTec To Private Equity Consortium
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Private equity groups, while never an overwhelming presence in the health care M&A market, have proved themselves to be connoisseurs and acquirers of promising health care companies. This May two PEGs, Avista Capital Partners and Nordic Capital Fund VII, combined forces to acquire Bristol-Myers Squibb’s (NYSE: BMY) ConvaTec unit for $4.1 billion in cash.
One of BMY’s three divisions, ConvaTec, based in Skillman, New Jersey, manufactures ostomy care, wound therapeutics and other surgical products. In business for 30 years, ConvaTec operates in 91 countries on six continents. In 2007, this division accounted for 19% of BMY’s total revenue. Of the $1.155 billion in revenue it generated, $594.0 million came from ostomy products, $488.0 million from wound therapeutics and the remainder from other products. During the same period, ConvaTec contributed EBIT of approximately $348.0 million to BMY’s results.
Though no small potatoes, a strategic review last year concluded that BMY would fare better as a pure-play pharmaceutical company, which led the company to shop its non-pharma assets. Although Bristol-Myers might have come to see its non-pharma units as a drag on its core pharma operations, a sharp-eyed private equity firm saw an opportunity to bring these units out of the shadows of the drug division and unlock their growth as stand-alone businesses.
This deal is not Avista’s first time at the rodeo. Last December, the New York City-based firm paid $525.0 million in cash, or 0.8x revenue, to acquire BMY’s medical imaging unit. Having closed that deal in January 2008 and relaunched the unit as Lantheus Medical Imaging in March, Avista has come back for more. To acquire BMY’s ConvaTec business, it is partnering with Nordic Capital, a PEG with offices in Stockholm, Copenhagen and Helsinki. Nordic Capital typically makes investments in the Nordic region, and ConvaTec has a long history there, having been present in Sweden for over 25 years. Nordic Capital is no stranger to health care with investments in biotech, pharma and medical device companies. Nor is it a stranger to Avista Capital; both are current investors in Nycomed, a midsize pharma company. One of Nordic’s portfolio companies, dating from 2003, is the device maker Unomedical. Unomedical manufactures single-use medical devices such as catheters and drainage bags, generating 2006 revenue of €265.0 million. It does not stretch the imagination to see Unomedical and perhaps some of Nordic Capital’s other medical device investments combined with ConvaTec to accelerate their growth.
Dave Johnson, CEO of ConvaTec, is to remain in that position as the company transitions to a stand-alone business. BMY’s CEO, James Cornelius, sees the sale—and particularly the proceeds from that sale—as advancing BMY’s goals of becoming a pure-play biopharma. To further that goal, BMY plans to sell a minority interest in its Mead Johnson Nutritional unit as well. The proceeds from these deals is helping BMY to finance its acquisition of biotech firms such as Kosan Biosciences (see page 3).
The $4.1 billion purchase price of the ConvaTec deal is provisional, and subject to adjustment based on the results in ConvaTec’s audited 2007 financial statements. Citigroup Global Markets and Morgan Stanley provided BMY with financial advice while Bear, Stearns provided similar services for both Nordic Capital and Avista Capital Partners.
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