deal capsule august 2014 - assets.kpmg · 1.4x 1.2x q2 2014 q2 2015 ∆14% 0.3x q2 2014 q2 2015...

1.4x

1.2x

Q2 2014 Q2 2015

∆14%0.3x

Q2 2014 Q2 2015

Debt-free

HIGHLIGHTS

M&A in the pharmaceutical sector continued to be brisk in Q2 2014. The top 10 announced deals, yet to close, for HY 2014, totaled $310 billion.

Creative structuring and asset swaps are being de-ployed to help pharmaceutical players secure deals to grow their core businesses, while exiting non-core activities at the same time.

Investor groups are increasingly active in pharmaceuti-cals, representing 23% of the number of deals com-pleted in Q2 2014. These range from smaller biotech investments to large LBOs such as Carlyle’s investment in Johnson&Johnson’s Ortho Clinical Diagnostics unit for $4.2 billion.

KPMG’s Deal Thermometer indicates that the environ-ment for M&A activity will remain ‘Hot’ in pharmaceuti-cals and ‘Moderate to Hot’ in chemicals. Pharmaceuti-cal and chemical companies have increased their appetite for deals in the last twelve months, reflected by increasing forward P/E Ratios. At the same time, Net Debt/EBITDA multiples are projected to decrease in the year to 30 June 2015, giving them more deal capacity.

DEAL THERMOMETER – Q2 2014

Deal CapsuleTransactions in Chemicals & Pharmaceuticals

August 2014

FIGURE 01 Number of deals by sector 2011 – Q2 2014

FIGURE 02 Deal value by sector 2011 – Q2 2014 – $ billion

“ We are seeing unprecedented levels of M&A deals being announced, with financial sponsors increasingly contributing to the deal frenzy.”Vir Lakshman Head of Chemicals & Pharmaceuticals, KPMG in Germany

Deal Appetite – Pharmaceuticals (Forward P/E Ratio)

Deal Capacity – Pharmaceuticals (Net Debt/EBITDA)

Deal Appetite – Chemicals (Forward P/E Ratio)

Deal Capacity – Chemicals (Net Debt/EBITDA)

KPMG’s Deal Thermometer signals the environment for M&A deals in chemicals & pharmaceuticals.

It combines the appetite for deals (changes in forward P/E ratios) with the capacity to fund deals (changes in Net Debt/ EBITDA multiples).

‘Hot’ signifies an environment conducive to deal-making.

Hot

Moderate

Cool

Hot

Moderate

Cool

© 2014 KPMG AG Wirtschaftsprüfungsgesellschaft, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Germany. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International.

Sources: Thomson One, KPMG

Sources: Thomson One, KPMG

Sources: Capital IQ, KPMG




680 643 602

146 162

814 796703

134 136

1,494 1,439 1,305

280 298

2011 2012 2013 Q1 2014 Q2 2014

Pharmaceuticals Chemicals

14.8

16.9

Q2 2013 Q2 2014

∆14%

12.4

14.7

Q2 2013 Q2 2014

∆19%

98 79 7250

19

81

32 51

8

9

179

111 123

58

28

2011 2012 2013 Q1 2014 Q2 2014

Pharmaceuticals Chemicals

2 | Deal Capsule | Pharmaceuticals | August 2014

Novartis in $28.5 billion portfolio shift

In April 2014, Novartis AG, as part of its strategic portfolio review, announced an innovative deal to trade assets. As part of the complex three-way deal, Novartis will swap its vaccine business for Glaxo- SmithKline PLC’s (GSK) cancer assets positioning it as a leader in treating melanoma cancer. The deal also includes entering into a joint venture with GSK to create one of the largest consumer healthcare businesses. In parallel, Novartis struck a deal to exit the animal health business by selling it to Eli Lilly & Co..

PharmaceuticalsIn Q2 2014, although the number of deals is slightly higher than in Q1 2014, deal values have declined. For the first half year (HY1 2014), there are over $310 billion in announced deals yet to close.

Some firms are actively seeking targets to offset de- clining R&D productivity and patent expirations of key drugs. For example, Humira’s impending patent expiry is one of the key reasons for AbbVie Inc.’s pursuit of Shire PLC. Along with the potential tax advantage that AbbVie will gain through this deal, Shire has an array of rare disease treatments that will help reduce AbbVie’s reliance on Hu-mira, which accounts for over 50% of AbbVie’s sales.

Unlike the 2009 M&A wave which led to pharmaceutical companies merging with rivals to create scale to compete in all areas, completed deals in Q2 are smaller and more tar-geted. Companies are acquiring products that fit well within their chosen therapeutic areas.

DEAL FOCUS AREAS

US continues to dominate the market with eight of the global top 10 completed deals involving US pharmaceutical companies. With approximately $310 billion in announced deals, M&A activity in the pharmaceuticals industry has significantly increased in the first half of 2014. The key deal drivers are pipeline replenishments, specialization, finan-cial optimization and portfolio consolidation.

FIGURE 03 Top countries in pharmaceutical M&A in Q2 2014 FIGURE 04 Number of pharmaceutical deals by investor in Q2 2014

Sources: Thomson One, KPMG Sources: Thomson One, KPMG

Sources: Company press releases, KPMG

77%

23%

Strategic Investors Financial Investors

3

2

4

9

8

9

9

9

19

29

0

2

1

0

1

2

1

6

0

15

United Kingdom

Germany

India

Japan

Spain

Canada

South Korea

France

China

USA

Domestic Acquirer Foreign Acquirer

For instance, Bristol-Myers Squibb Co. (BMS) acquired iPierian Inc. to bolster its neuro-degenerative drug pipeline with treatments designed to fight tau proteins linked to Alz- heimer’s disease and several disorders in the human brain. Neuroscience is one of the six therapy focus areas for BMS.

US-based companies continue to pursue financial optimiza-tion by seeking targets in lower tax jurisdictions, funded by their cash piles outside the US.

FIGURE 05 Asset swaps Novartis, GSK and Eli Lilly

GSK Contribution Novartis Contribution


OTC Joint

Venture

Eli LillyGlaxoSmithKline Novartis

New Consumer Healthcare business

36.5%

63.5%

August 2014 | Pharmaceuticals | Deal Capsule | 3

The deal value of the global top 10 announced deals in HY1 2014 was $ 310.2 billion

TABLE 02 GLOBAL TOP DEALS ANNOUNCED, YET TO CLOSE – HY1 2014

The deal value of the global top 10 completed deals in Q2 2014 was $ 16.8 billion

Bidder Target Therapy area Deal Status Total

value*

Pfizer Inc. AstraZeneca PLC Biopharmaceuticals Withdrawn 117.1

AbbVie Inc. Shire PLC Neuroscience, gastrointestinal, internal medicine

Pending shareholder and antitrust approval

54.8

Valeant Pharmaceuticals Intl.

Allergan Inc. Eye care, neurosciences, dermatology, urologies

Pending 53.0

Actavis PLC Forest Laboratories Inc. CNS, cardiovascular diseases, anti-infective

Completed on 1 July 2014

28.0

Novartis AG GlaxoSmithKline PLC -Oncology Business

Oncology Pending shareholder and antitrust approval

16.0

Bayer AG Merck & Co. - Consumer Care Business

Consumer Care Pending antitrust approval

14.2

Mylan Inc. Meda AB Respiratory, dermatology, OTC Withdrawn 9.0

GlaxoSmithKline PLC Novartis AG - Vaccine Business Vaccines Pending shareholder and antitrust approval

7.1

Mallinckrodt PLC Questcor Pharmaceuticals Inc. Autoimmune, inflammatory disorders


5.6

Eli Lilly & Co. Novartis AG - Animal Health Division

Animal health Pending shareholder and antitrust approval

5.4

* All numbers are in USD billion. Blue numbers are estimated values. Sources: Thomson One, KPMG

Bidder Target Therapy area Value Contingent

payments Total value *

McKesson Corp. Celesio AG Wholesaler of pharmaceutical and healthcare products and services

6.8

The Carlyle Group LLC**

Johnson & Johnson - Ortho-Clinical Diagnostics unit

Transfusion medicine incl. donor screening and blood typing products

4.2

Temasek Investor Group

CEVA Santé Animale S.A. Animal healthcare incl. vaccines 2.0

Bristol-Myers Squibb Co.

iPierian Inc. Neurodegenerative diseases 0.2 0.6 0.8

H. Lundbeck A/S Chelsea Therapeutics Ltd. Neurology 0.7

Akorn Inc. Hi-Tech Pharmacal Co., Inc. Generics, prescription brands, OTC incl. diabetes, bronchial disorders

0.6

Hyperion Therapeutics Inc.

Andromeda Biotech Ltd. Diabetes 0.1 0.5 0.6

Shenzhen Hepalink Pharmaceutical Co., Ltd.

Scientific Protein Laboratories LLC

APIs for the pharmaceutical, veterinary, food industries

0.3 0.2 0.5

Torrent Pharmaceuticals Ltd.

Elder Pharmaceuticals Ltd. Women's healthcare, nutraceuticals, pain and wound management

0.3

Concordia Healthcare Corp.

Revive Pharmaceuticals Inc. - Donnatal product line

Abdominal discomfort, bowel syndrome, acute enterocolitis

0.3

TABLE 01 GLOBAL TOP DEALS COMPLETED – Q2 2014

* All numbers are in USD billion. Blue numbers are estimated values. ** Financial investors are italicized. Sources: Thomson One, KPMG


4 | Deal Capsule | Pharmaceuticals | August 2014

Sources: Thomson One, KPMGSources: Bloomberg, KPMG

Domestic deal activity for China has increased in Q2 over Q1 2014 as local companies continue to expand their presence. Major players (whether strategic or financial) are especially keen to acquire businesses in China. However, good targets are difficult to find given high pricing and sen-sitivities around compliance risks.

Chinese companies are also keen to invest abroad to drive R&D and specialization. In Q2 2014, Shenzhen Hepalink Pharmaceutical Co., Ltd. acquired US based Scientific Pro-tein Laboratories LLC – a leading global heparin active phar-maceutical ingredient (API) player. The acquisition will en-hance Shenzhen Hepalink’s R&D capabilities.

CHINA

FIGURE 07 Pharmaceutical deals in selected countries in Q2 2014

Financial investors are showing keen interest in the phar-maceutical sector with 23% of deals involving PE houses, investment companies/groups or individual investors. In some instances, financial investors are picking up second-ary non-core assets.

Adding to a series of investments in the healthcare sector, the Carlyle Group completed the acquisition of Johnson & Johnson’s Ortho-Clinical Diagnostics (OCD) unit, with 2013 sales of $1.9 billion. Carlyle will provide new leadership and accelerated R&D investment to strategically position OCD as a global leader in sophisticated medical diagnostic products and services, a promising growth area.

As part of CEVA Santé Animale S.A.’s capital restructur-ing, Temasek Investor Group, a Singaporean state owned investment fund, took an equity stake in CEVA, an animal health business. The capital injection will help CEVA realize its ambition to become the first independent player within the top 5 global animal health companies by 2020.

FINANCIAL INVESTORS MORE ACTIVE

FIGURE 06 Development of European share prices in HY1 2014

McKesson secures acquisition of Celesio

McKesson Corp., one of the largest US pharmaceuti-cal wholesalers with 2013 sales of $137 billion, was interested in increasing its presence internationally as a leading player in efficient global delivery of healthcare products and services. Celesio AG with 2013 sales of $28 billion, presented itself as the perfect candidate providing an ideal regional fit due to its presence in more than 14 countries including key European markets such as Germany, France, the UK as well as in emerg-ing markets such as Brazil.

McKesson’s initial bid of $31.2 (€23) per share in Oc-tober 2013 was blocked by the US hedge fund Elliott Management Corp. (Elliott). In January 2014, McKes-son entered into a revised share purchase agreement with Franz Haniel & Cie. GmbH to acquire their entire holding of Celesio shares. McKesson also agreed with Elliott to acquire Celesio convertible bonds. In February 2014, McKesson announced the successful comple-tion of these agreements and initiated the tender offer for $31.8 (€23.5). Following the close of an initial and subsequent acceptance period, McKesson officially owns 75.93% of Celesio shares and voting rights as of 22 April 2014.

The top European pharmaceutical companies have per-formed better than the Bloomberg European 500 Index.

CAPITAL INDEX

250

260

270

280

290

300

02.0

1.20

14

02.0

2.20

14

02.0

3.20

14

02.0

4.20

14

02.0

5.20

14

02.0

6.20

14

02.0

7.20

14

Bloomberg European 500 Index (indexed)BE500 Pharmaceutical Index

44

1115

9

3 4

19

10 95

39

11 119 10

3

20

10 10

5

USA Canada France Spain United Kingdom

Germany China South Korea

Japan India

Target Nations Acquirer Nations

“From manufacturing through to distribution, our industry is clearly becoming increasingly global. Together with McKesson, Celesio will deal with the increasing complexity this brings and become an even stronger international enterprise.” says Dr. Marion Helmes, speaker of the management board and CFO, Celesio


August 2014 | Chemicals | Deal Capsule | 5

Chemicals

In Q2 2014, the bulk of chemical deals continue to be bolt on transactions. Similar to Q1, all of the global top 10 completed deals are each under $2.5 billion. US continues to dominate with four of the global top 10 completed deals involving US targets.

US shale gas continues to drive M&A activity

The US shale gas boom and the resulting decrease in energy prices have continued to remain an important factor for US related deal activity. For example, Mit-subishi Chemical Holdings Corp. announced it would increase its stake in Tayio Nippon from 27% to 51%. This will allow it to seize market opportunities in South-east Asia and India and to meet increased demand for gases used in its US plants owned jointly with Dow Chemical. They will also supply US gas companies with gas production equipment. For Taiyo Nippon, the deal is an opportunity to leverage increasing demand in the US given weaker market conditions in its home market.

FIGURE 08 Top countries in chemical M&A in Q2 2014 FIGURE 09 Number of chemical deals by investor in Q2 2014

15

9

98

6

7

By acquiring the leading high-tech materials supplier, AZ Electronic Materials SA, with an extensive operational footprint in Asia, Merck AG has strengthened its position as a premium segment solutions provider for the global electronics market.

Minerals Technologies Inc.’s acquisition of Amcol Interna-tional Corp. aims to create leadership in specialized indus-trial minerals, especially in the bentonite and precipitated calcium carbonate market sectors.

Entegris Inc.’s acquisition of ATMI Inc. combined two key leaders in the semiconductor industry. Entegris gains access to ATMI’s product portfolio, global infrastructure and expertise in key processes. This creates a technology leader in advanced process materials, contamination con-trol and wafer handling.

Rockwood Holdings Inc. acquired a 49% joint venture stake in Australia-based Talison Lithium Ltd. (Talison) partnering with Tianqi Lithium Industries Inc., China’s leading lithium company. This expands Rockwood’s mainly American based geographical presence to Australia. Talison mines and processes lithium-bearing mineral spodumene in an area which has the world’s largest known reserves of lithium spodumene minerals with a current mine life of ap-proximately 40 years.

Similarly, PPG Industries Inc.’s (PPG) purchase of Consorcio Comex SA, a leading Latin American architectural coatings business, aims to enlarge PPG’s presence in Mexico and Central America.

DEAL FOCUS AREAS

Top deals during Q2 2014 were strategic in nature as chemical companies continue to position themselves in an increasingly competitive global marketplace. Specialization and geographical expansion were the key deal drivers behind the global top 10 completed deals in Q2 2014.

Sources: Thomson One, KPMGSources: Thomson One, KPMG

2

3

0

6

3

7

3

5

14

21

1

1

5

0

4

1

6

4

2

6

United Kingdom

South Korea

Germany

Japan

Brazil

India

Canada

France

China

USA

Domestic Acquirer Foreign Acquirer

18%

82%

Strategic Investors Financial Investors


6 | Deal Capsule | Chemicals | August 2014

The deal value of the global top 10 announced deals in HY1 2014 was $ 14.8 billion Bidder Target Business area Deal Status Total

value *

Samsung SDI Co., Ltd. Cheil Industries Inc. Scratch resistant resins, semiconductor materials

Merger approved by shareholders

3.3

PPG Industries Inc. Consorcio Comex, S.A. de C.V.

Coatings and related products

Pending antitrust approval

2.3

Flint Hills Resources LLC PetroLogistics LP and PetroLogistics GP LLC

Propane dehydrogenation Completed on 17 July 2014

2.1

Clayton Dubilier & Rice LLC Ashland Water Technologies Inc.

Specialty chemicals for water treatment

Completed on 01 August 2014

1.8

Mitsubishi Chemical Holdings Taiyo Nippon Sanso Corp. (24%)

Industrial gases and related equipment

Tender offer in Q4 2014

1.1

NIPSEA Holdings International Ltd.

Nippon Paint Co. Ltd. (19%) Paint, coatings, surface treatment

Pending 1.0

Platform Specialty Products Corp.

Chemtura Corp. - Agrochemical Business

Agricultural chemicals incl. seed treatment products


1.0

Nippon Paint Co. Ltd. Nippon Paint (HK) Co. Ltd Paint and coatings Pending 0.8

Kraton Performance Polymers Inc.

LCY Chemical Corp. - Styrenic Block Business

Methanol, solvents, elec-tronic-grade chemicals, etc.

Combination agreement signed

0.7

Westlake Chemicals Corp. Vinnolit Holdings GmbH PVC Completed on 31 July 2014

0.7

The deal value of the global top 10 completed deals in Q2 2014 was $ 7.5 billion

TABLE 04 GLOBAL TOP DEALS ANNOUNCED, YET TO CLOSE – HY1 2014

Bidder Target Business area Total value *

Merck KGaA AZ Electronic Materials S.A. Premium segment high-tech materials, functional specialty chemicals

2.5

Minerals Technologies Inc. Amcol International Corp. Specialty materials with a core expertise in minerals and polymer science

1.5

Entegris Inc. ATMI Inc. Advanced materials, material delivery systems 1.1

Arle Capital Partners Ltd.** and Electra Private Equity PLC

Innovia Group Polypropylene and cellulose films for food packaging, tobacco overwrap and labels

0.7

Balchem Corp. Performance Chemicals & Ingredients LLC

Customized food and beverage ingredient systems

0.6

Kulczyk Investments Ciech S.A. (51%) Soda, isocyanates and sulphur 0.3

LG Chem Ltd. NanoH2O Inc. Reverse osmosis membranes 0.2

Rockwood Holdings Inc. Talison Lithium Ltd. (49%) Lithium production 0.2

Daesung Group Partners Co., Ltd.

Daesung Industrial Gases Co., Ltd. (50%)

High-pressure gas incl. oxygen, nitrogen, argon 0.2

Stahl Holdings BV Clariant AG - Leather Services Business Unit

Wet end chemicals and dyes, finishing for leather manufacturing

0.2

TABLE 03 GLOBAL TOP DEALS COMPLETED – Q2 2014




August 2014 | Chemicals | Deal Capsule | 7

The European chemical industry slightly under-performed the Bloomberg European 500 Index in Q2 2014.

CAPITAL INDEX

In Q2 2014, South Korean chemical companies continue to acquire downstream businesses with specialized technology. LG Chem Ltd. bought NanoH2O Inc., a US-based start-up which has rapidly established itself as a leading re-verse osmosis membrane manufacturer in the desalination industry. The deal aims to boost the delivery of innovative and energy-efficient membrane technologies.

In addition, South Korean companies are looking to leverage their strengths through strategic partnerships. For example, Samsung SDI Co., Ltd. announced it would merge with Cheil Industries Inc. to leverage Cheil’s chemical and elec-tronic materials supply chain with Samsung SDI’s lithium-ion battery business. Market synergies are expected in automotive and lighting sectors.

Daesung Group Partners Co., Ltd. bought out its 35-year strategic joint venture partner, Air Liquide SA, to acquire 100% of Daesung Industrial Gases, a leading industrial gas producer. Following this transaction and to pay back loans in property development, Daesung Group Partners sought to raise capital. A financial consortium led by Goldman Sachs will take a controlling stake in the business. Daesung will have the option of buying back the gas pro-ducer at an agreed-upon valuation in four years.

SOUTH KOREA REMAINS ACTIVE

FIGURE 10 Development of European share prices in HY1 2014 FIGURE 11 Chemical deals in selected countries in Q2 2014

Sources: Bloomberg, KPMG Sources: Thomson One, KPMG

In an attempt to make Chinese companies more competitive in the global M&A market, the National Development and Reform Commission has eased the process for investment approval filings. In May 2014 the regulatory approval thresh-old for overseas investments with Chinese participation has increased from $100 million to $1 billion. This amendment to Chinese M&A regulation is expected to shorten takeover lead times significantly.

CHINA EASING REGULATORY BURDENS

280

290

300

310

320

02.0

1.20

14

02.0

2.20

14

02.0

3.20

14

02.0

4.20

14

02.0

5.20

14

02.0

6.20

14

02.0

7.20

14

Bloomberg European 500 Index (indexed)BE500 Chemical Index

27

97

9

35

16

68

4

29

7

3

7 8

4

1412 11

4

USA Canada Brazil France United Kingdom

Germany China Japan India South Korea

Target Nations Acquirer Nations

Stahl acquires Clariant’s Leather Services business

Stahl, headquartered in the Netherlands, completed its acquisition of Clariant’s Leather Services Business in Q2 2014. Stahl has taken over all the relevant activities including production sites in Germany, Italy and India and laboratories in several countries. Clariant has taken a minority stake in the combined business, alongside Wendel and other shareholders.

“As a result of the acquisition, Stahl has become a global leader in chemicals for leather products, covering the entire leather processing chain. As we expand our market and product coverage, we are able to respond even better to our clients’ needs.”, says Bram Drexhage, Group CFO, Stahl Holdings BV.


The information contained herein is of a general nature and is not intended to address the cir-cumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Our services are provided subject to our verification whether a provision of the specific services is permissible in the individual case.


Imprint

Publisher

KPMG AG Wirtschaftsprüfungsgesellschaft Tersteegenstrasse 19 – 31 40474 Dusseldorf Germany

Contact

Vir Lakshman * Partner, Head of Chemicals & Pharmaceuticals, Germany T +49 211 475-6666 [email protected]

Christian Klingbeil Partner, Valuations T +49 89 9282-1284 [email protected]

Christian Specht Partner, M&A T +49 69 9587-2240 [email protected]

Authors

Rita Duran Senior Manager, Chemicals & Pharmaceuticals, Germany

Sebastian Heinisch Chemicals & Pharmaceuticals, Germany

Contributors

Linda Lin Partner, KPMG in China

Tobias Valk Partner, KPMG in Switzerland

www.kpmg.de

* Responsible according to German Law

(§ 7 (2) Berliner PresseG)

Basis of data preparation

Values and volumes used throughout the report are based on completion date as provided by Thomson Reuters’ database Thomson One as of 1 July 2014, and supplemented by additional independent research. This report includes disclosed and undisclosed values for M&A transactions including minority stake purchases, acquisitions of remaining interest, and recapitalizations and it explicitly excludes self-tenders and spin-offs. The published numbers of deals and deal values are based on the analysis of target companies which operate in the following subsectors:

Pharmaceuticals: – Medicinal chemicals & botanical products – Pharmaceutical preparations – In vitro and in vivo diagnostic substances – Biotechnology – biological products – Pharmaceutical wholesale (added starting in Q2 2014)

Chemicals: – Clay, kaolin, ceramic & refractory minerals – Chemical and nonmetallic mineral mining, except fuels – Fertilizers and agricultural chemicals – Industrial gases – Specialty chemicals – Chemical wholesale – Plastics and rubber components

KPMG’s Deal Thermometer is based on financial data as provided by S&P Capital IQ of public companies in the same sector as noted above with a market capitalization at quarter end of at least a $1 billion. For the pharmaceuti-cal sector, this comprises 279 public companies. For the chemical sector, this comprises 254 public companies.

All figures in this report are shown in US Dollars ($).

SourcesOnline databases: – Thomson One (Thomson Reuters) – Mergermarket – S&P Capital IQ – EvaluatePharma – Bloomberg

Publications: – Various companies’ press releases

deal capsule august 2014 - assets.kpmg · 1.4x 1.2x q2 2014 q2 2015 ∆14% 0.3x q2 2014 q2 2015...

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