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December 15, 2016

Lonza Buys Capsugel for $5.5B Cash

  • Swiss pharma giant Lonza is buying drug capsule and delivery systems firm Capsugel from its private equity owner KKR for $5.5 billion in cash. The deal, which is expected to close in Q2 2017, includes the refinancing of Capsugel’s existing $2 billion debt. Lonza said it aims to raise up to CHF3.3 billion ($3.2 billion) in new capital and has secured committed debt financing for the full acquisition amount from Bank of America Merrill Lynch and UBS.

    Capsugel develops and manufactures hard capsule and other dosage forms for the biopharma and consumer health and nutrition industries. The firm has over 4000 customers in 100 countries, 13 global facilities and 3600 employees, and has formulated more than 4000 marketed compounds. Capsugel recorded 2015 sales of  $1 billion and adjusted EBITDA of $344 million.

    Lonza says the acquisition will expand the market reach of its contract development and manufacturing organization (CDMO) and products businesses and transform the combined entity into a fully integrated provider of development, formulation, delivery, and manufacturing technologies for the pharma industry and oral delivery technologies and APIs to the consumer healthcare and nutrition markets. In particular, the acquisition is expected to bolster Lonza's position in the consumer healthcare and nutrition sector through the provision of active ingredients, oral dosage forms, development services, and delivery technologies. "The acquisition of Capsugel meets Lonza’s strategic and financial goals," CEO Richard Ridinger said in a statement. "It accelerates our healthcare continuum strategy by giving us broader exposure to the fast-growing pharma and consumer healthcare markets." Speaking to the press, Ridinger stressed that the combined company will be able to get "closer to our customers, as we are now an end-to-end provider, from active pharmaceutical ingredients, to the delivery systems."

    Lonza said it expects to achieve about CHF30 million in operating synergies annually, by the third year, and CHF15 million in annual tax synergies. Mid-to-long-term topline synergies of about CHF100 million are projected. The acquisition is expected to be earnings accretive from the first full year after closing.

    The combined company will also provide an avenue for the cross-selling of existing products and combines manufacturing solutions and services. Ridinger stated that every part of Capsugel  represents a perfect fit for its healthcare continuum strategy. "For us it's a business in a very good shape, complementary, and offers the right things that our complementary to ours…the fact that we have both CDMO capabilities and that we are delivering consumables is the ideal fit," he added. "CDMO gives us access to innovation. We will also be able to be at the cutting edge of the new technologies in the pharma and the consumer healthcare market."

    During September and October, Capsugel announced the expansion of technology platforms and manufacturing capacities at its development and manufacturing sites in the U.S., Scotland, and France. The firm said it was increasing capacity for micronization services, installing new spray-drying units, and expanding its microdosing services, microbiome formulation capabilities, and commercial manufacturing capacity for lipid-based formulations.

     

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