HIgHLIgHtS
M&A market was relatively tame in 2013 – the number of deals declined by 10 % over 2012 and there were no deals greater than $10 billion in the top global deal lists for chemicals and pharmaceuticals.
Emerging markets such as China and Russia continue to play an important role.
Strategic buyers, seeking product portfolio and market synergies, dominate pharmaceutical transactions.
Disposals to focus on core business continue to be in trend in chemical transactions with excess cash from sales proceeds used to increase shareholder returns. Financial buyers are picking up the assets.
Non-traditional consideration is being used to bridge valuation gaps in pharmaceutical transactions.
MARket outLook
(based on survey conducted by KPMG in collaboration with “Mergers & Acquisitions” magazine)
Pent-up demand will facilitate deal activity in 2014. Healthcare, pharmaceuticals, life sciences are anticipated to be among the most active industries, right behind technology.
Middle market is expected to be most active – 77 % of survey respondents anticipate enterprise value per transaction to be less than $250 million.
Most active markets will be US, Western Europe and China.
Deal CapsuleTransactions in Chemicals & Pharmaceuticals
March 2014
“ Strong balance sheets and the economic recovery in Europe point to brisk M&A activity in 2014. ”Vir Lakshman, kPMg, germany Head of Chemicals & Pharmaceuticals, germany
FIguRe 01 Deals by sector 2009 – 2013 1
Sources: Thomson One, KPMG
1.600
1.400
1.200
1.000
800
600
400
200
0
20102009 2011 2012 2013
Num
ber
of d
eals
Pharmaceuticals Chemicals
1,3431,475 1,428 1,372
1,240726
835 814 796703
617 640 614 576 537
1 Pharmaceuticals include biotechnology; Chemicals include plastic and rubber components and chemical and nonmetallic mineral mining.
FIguRe 02 Deals by region 2009 – 2013
Sources: Thomson One, KPMG
North America Europe Asia-Pacific Latin America Africa, Middle East, Central Asia
1.600
1.400
1.200
1.000
800
600
400
200
0
Num
ber
of d
eals
2013
1,240
391
391
368
4743
2012
1,372
432
439
397
7232
2011
1,428
465
434
413
7541
2010
1,475
522
459
390
6539
2009
1,340
427
415
431
3334
Sources: Thomson One, KPMG
FIguRe 03 Deal value by sector 2009 – 2013 1
20102009 2011 2012 2013
Dea
l val
ues
($ b
illio
n)
Pharmaceuticals Chemicals
250
200
150
100
50
0
109 10969
51
3276
81
9647
61
33194
227
120
177
2 | Deal Capsule | Pharmaceuticals | March 2014
Pharmaceuticals
In 2013, seven out of the top 10 global deals involved US bidders. Four of the top global deals approached the $10 billion mark.
Analysis by sectorStrategic investors from the pharmaceutical sector ac-counted for more than 50 % of the number of deals in 2013 (or 87 % in terms of total deal value). Financial investors accounted for 19 % of the number of deals (or less than 4 % of total deal value) in 2013.
Many of the top ten acquirers bought mainly to expand their product portfolio and to strengthen their market position.
For example, Amgen acquired Onyx Pharmaceuticals to build on strengths in cancer therapies. Valeant Pharmaceu-ticals bought Bausch & Lomb to gain leadership in both der-matology and eye health. Actavis acquired Warner Chilcott to expand its Specialty Brands portfolio.
unlocking value through divestments via IPosTwo large 2013 spin-offs not included in our deal list but worthy of mention are Abbott Laboratories’ spin-off of AbbVie ($56 billion market capitalization at flotation) as well as Pfizer’s sale of 20 % of its animal health business, Zoetis, in an IPO ($2.2 billion market capitalization at flotation).
Companies are using excess cash flow to increase share-holder returns (through buybacks and dividends) and/or to reduce debt.
Share repurchases for Pfizer ($10 billion), Abbott ($5 billion), Celgene Corp ($5 billion), Forest Laboratories ($1 billion) and AbbVie ($1.5 billion) are some major examples.
use of contingent consideration to bridge valuation gapsDue to inherent transaction risks in the pharmaceuti-cal industry, contingent consideration is often used to bridge valuation gaps.
The value of contingent consideration across our global top 10 deal list represented 7 % (9 % for the European top 10 deals) in 2013. Among the top global deals in which contingent consideration was negotiated, the contingent portion ranged from 14 % up to 51 % of total deal value.
Contingent consideration can be based on measur-able performance milestones, such as sales or EBITDA targets or on non-financial events such as regulatory approval.
For example, Biogen Idec has agreed to pay contingent consideration based on the sales of the drug, Tysabri®, acquired from Elan – 12 % of global net sales for the first twelve months, 18 % thereafter up to $2 billion and 25 % of annual global net sales that exceed $2 bil-lion. Elan, the seller, has stated that Tysabri® sales may reach $2.5 billion to $3 billion by 2016.
DeAL FoCuS AReAS
Top deals in 2013 were made by strategic investors and generally focused on promising therapy areas such as cancer, infectious diseases and aging related areas.
FIguRe 04 Top 10 pharmaceutical deals worldwide
Sources: Thomson One, KPMG
200
150
100
50
0
20102009 2011 2012 2013
Dea
l val
ues
($ b
illio
n)
Strategic Investor Financial Investor
171.8
30.6
171.8
35.3
66.8
62.740.9 46.8
46.842.84.7
4.11.9
FIguRe 05 Pharmaceutical deals by acquiring sector 2013 in %
Other Investors include unspecified individual and group investors and special purpose acquisition companies.
Sources: Thomson One, KPMG
Pharmaceuticals Financial Investors Other Investors Consumer Markets Public Sector
Technology & Business Services
Diversified Industrials Chemicals Other Sectors
18
11
10
4552
2
2
3
3
© 2014 KPMG AG Wirtschaftsprüfungsgesellschaft, a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International.
March 2014 | Pharmaceuticals | Deal Capsule | 3
The deal value of the global top 10 deals in 2013 was $ 46.8 billion
The deal value of the European top 10 deals in 2013 was $ 26.4 billion Bidder target therapy area Value 3 Contingent
payments 3total value 3
Perrigo Co. Elan Corp. PLC Multiple neuropsychiatric indications 8.6 8.6
Actavis Inc. Warner Chilcott PLC Women’s healthcare, gastro- enterology, urology, dermatology
8.5 8.5
Biogen Idec Inc. Tysabri® (drug Elan Corp. PLC) Multiple sclerosis 3.3 1.9 5.2
Aspen Pharmacare Holdings Ltd.
API manufacturing plant of Merck & Co. in Oss, NL
Active pharmaceutical ingredient (heparin)
1.0 1.0
BASF Pronova BioPharma ASA Omega-3 products 0.9 0.9
Syngenta Crop Protection AG
Devgen N. V. Agricultural biotechnology 0.5 0.5
Kinetic Concepts Inc. Systagenix Wound Care Ltd. Surgical wound care 0.5 0.5
Pharma Strategy Partners GmbH 4
Acino Holding Ltd. Drug delivery forms 0.4 0.4
MedImmune LLC (part of AstraZeneca PLC)
Spirogen Limited Cancer research 0.2 0.2 0.4
Clovis Oncology Inc. EOS S.p.A. Cancer 0.2 0.2 0.4
tABLe 02 EUROPEAN TOP DEALS 2013 2
Sources: Thomson One, KPMG Blue numbers are estimated values. Financial investors are italicized.
Bidder target therapy area Value 3 Contingent
payments 3total value 3
Amgen Inc. Onyx Pharmaceuticals Inc. Cancer 9.7 9.7
Valeant Pharmaceuti- cals International Inc.
Bausch & Lomb Inc. Eye-care 8.7 8.7
Perrigo Co. Elan Corp. PLC Multiple neuropsychiatric indications 8.6 8.6
Actavis Inc. Warner Chilcott PLC Women’s healthcare, gastro- enterology, urology, dermatology
8.5 8.5
Biogen Idec Inc. Tysabri® (drug of Elan Corp. PLC)
Multiple sclerosis 3.3 1.9 5.2
Mylan Inc. Agila Specialties Pvt Ltd. Penicillin, oncology drugs, sterile injectables
1.6 0.3 1.9
AstraZeneca PLC Pearl Therapeutics Inc. Respiratory diseases (including COPD, asthma)
0.6 0.6 1.2
Aspen Pharmacare Holdings Ltd.
API manufacturing plant of Merck & Co. in Oss, NL
11 branded drugs: hormones, anticoagulant, steroid, thyroid, oral contraceptives, vitamin B
1.0 1.0
Johnson & Johnson Aragon Pharmaceuticals Inc. Hormonally-driven cancer 0.7 0.3 1.0
Allergan Inc. MAP Pharmaceuticals Inc. Neurology (migraine) 1.0 1.0
tABLe 01 GLOBAL TOP DEALS 2013 2
2 The deals include closed M&A activities in pharmaceuticals and biotechnology. 3 In $ billion 4 A subsidiary of the international investors Avista Capital and Nordic Capital
Sources: Thomson One, KPMG Blue numbers are estimated values.
© 2014 KPMG AG Wirtschaftsprüfungsgesellschaft, a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International.
4 | Deal Capsule | Pharmaceuticals | March 2014
FDA approvals fell, but drugs approved offer high blockbuster potentialThe number of approved drugs and biologicals fell from 43 in 2012 to 33 in 2013. However, their expected fifth year sales are estimated at $25.4 billion, 50 % higher than that of 2012. For some large pharmaceutical companies on the list, their 2013 approved products resulted from past transac-tions. For example, Roche’s 2009 buyout of Genentech brought it Kadcyla, a drug approved in 2013. GSK’s 2009 joint venture with Pfizer developed Tivicay, a drug also approved in 2013. There are also successful smaller companies which acquired their 2013 approved drug from past transactions. For example, Biogen’s 2006 acquisition of Fumapharm brought it Tecfidera. Gilead’s 2012 acquisi-tion of Pharmasset brought it the approved drug Sovaldi. All four of these drugs have blockbuster potential ranging from $2 to 4 billion.
APPRoVeD DRugS
In the twelfth five-year plan (2011 – 2015) the Chinese gov-ernment defined nine key strategic industries including life sciences. As a result, Chinese pharmaceuticals companies are integrating their value chain vertically. For example, Walvax, a pharmaceutical company focused on biotechnol-ogy and blood preparations, undertook a series of acquisi-tions totaling $240 million.
Given the difficulties accessing the Chinese capital market with IPOs, VC/PEs are selling their investments to listed companies. A recently announced large ‘back-door’ listing is the $910 million acquisition of Jiangsu Jichuan Holding Group Co. by Hubei Hongcheng Gen Mach Co.
CHInA
European pharmaceutical companies have performed consistently better than the Bloomberg European 500 Index average with the spread becoming wider over the last two years as we move beyond the patent cliff.
CAPItAL InDex
FIguRe 07 Top 10 pharmaceutical deals in Europe
Sources: Thomson One, KPMG
30
25
20
15
10
5
0
20102009 2011 2012 2013
Dea
l val
ues
($ b
illio
n)
Strategic Investor Financial Investor
7.8
7.3
17.3 18.3
18.315.2
11.4
26.0
26.4
12.7
0.4
1.3
2.1
0,6
FIguRe 08 Development of share prices
Sources: Bloomberg, KPMG
300275250225200175150125100
01.2
00
9
01.2
00
8
01.2
010
01.2
011
01.2
012
01.2
013
01.2
014
01.2
007
Bloomberg European 500 Index BE500 Pharmaceutical Index
FIguRe 06 Deals in BRICS countries
Sources: Thomson One, KPMG
China India
Russia South Africa
Brazil BRICS deal value
150
100
50
0
15
10
5
0
20102009 2011 2012 2013
Num
ber
of d
eals
86104
131 126
41
61
83 7973
11
15 13 1411
3020
21 20 222
2
1011
4 3 38
8
2
Val
ue (
$ bi
llion
)120
© 2014 KPMG AG Wirtschaftsprüfungsgesellschaft, a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International.
March 2014 | Chemicals | Deal Capsule | 5
Chemicals
In 2013, chemical deals were also bolt on transactions, no mega deals, all of the top 10 deals are each under $5 billion, both globally as well as for Europe.
Companies are using excess cash flow to increase share-holder returns (through buybacks and dividends) and/or to reduce debt. DuPont used proceeds to initiate a $1 billion share buyback and debt reduction. Ashland plans to use the net proceeds from the sale of its water business to return capital to shareholders.
uS dominates the M&A sceneThe increased deal activity in the US is being driven by business restructuring spurred on, for example, by activist investors and the shale gas phenomenon. In the US, activist investors have taken stakes in DuPont, Air-Products, Ashland, Ferro, American Pacific and Calgon Carbon.
US domestic shale gas production is driving lower en-ergy prices resulting in a new competitive edge for US businesses. This is driving a huge interest for specialty chemical assets.
Moving up the value chainThe Oman acquisition of Oxea in 2013 is primarily in the intermediate area nudging this Middle Eastern company upwards along the product value chain.
DeAL FoCuS AReAS
Top deals in 2013 generally focused on downstream specialty chemicals and higher R&D based businesses.
FIguRe 09 Top 10 chemical deals worldwide
Sources: Thomson One, KPMG
60
50
40
30
20
10
0
20102009 2011 2012 2013
Dea
l val
ues
($ b
illio
n)
Strategic Investor Financial Investor
14.323.1
33.3
17.7
14.813.9 11.1
15.1
28.1
51.0
17.0
26.227.9
2.2
4.8
FIguRe 10 Chemical deals by acquiring sector 2013 in %
5 Other Investors include unspecified individual and group investors and special purpose acquisition companies. 6 Other Sectors include 1 % pharmaceutical sector.
Sources: Thomson One, KPMG
Chemicals Diversified Industrials Energy & Natural Resources Consumer Markets Financial Investors Other Investors 5
Other Sectors 6
4615
9
98
6
7
Chemical companies continue to divest non-core assets to focus on core higher margin businesses. In many instances, private equity buyers are picking up the assets. examples of 2013 disposals to private equity
DuPont sold its performance coatings business to concentrate on three integrated competencies: agriculture and nutrition, advanced materials and biotechnology.
PPG disposed of its commodity chemicals business to focus on the higher margin generating coatings business.
Clariant AG exited its lower-margin textile chemicals, paper specialties and emulsions businesses in 2013.
Cytec Industries Inc. sold its coating resins business.
For 2014, portfolio transformation will continue as many players have announced plans to divest non-core assets:
Ashland intends to sell its water technologies and elastomer businesses.
Dow plans to divest its commodity chemicals business (US-chloralkali, global epoxy, global chlorinated organics).
DuPont is looking for a strategic alternative for its Performance Chemicals business.
© 2014 KPMG AG Wirtschaftsprüfungsgesellschaft, a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International.
6 | Deal Capsule | Chemicals | March 2014
The deal value of the global top 10 deals in 2013 was $ 26.2 billion Bidder target Business area total value 8
The Carlyle Group LP Coatings Unit of DuPont Coatings and application tools for automobile repair body shops
4.9
ONEXIM Group Uralkali OJSC Potash, mineral fertilizer 3.5
URALCHEM OJSC Uralkali OJSC Potash, mineral fertilizer 2.9
Chengdong Investment Corp. Uralkali OJSC Potash, mineral fertilizer 2.8
Oman Oil Company S.A.O.C. Oxea GmbH Oxo-based chemical products 2.4
Ecolab Inc. Champion Technologies Inc. Specialty chemicals for the oil and gas industry
2.3
Axiall Corp. (formerly Georgia Gulf Corp.)
Commodity chemicals business of PPG Industries Inc.
Chlorine, caustic soda and related chemicals
2.1
Cinven Limited CeramTec GmbH Advanced ceramics 2.0
Platform Specialty Products Corporation (formerly Platform Acquisition Holdings Ltd.)
MacDermid Inc. Chemicals for electronics, industrial, offshore and printing industries
1.9
Solvay SA Chemlogics Group Specialty chemicals for the oil and gas industry
1.4
tABLe 03 GLOBAL TOP DEALS 2013 7
Sources: Thomson One, KPMG Blue numbers are estimated values. Financial investors are italicized.
7 The deals include closed M&A activities in chemicals, fertilizer, chemical and fertilizer mineral mining, clay, ceramic, rubber, and plastics (excluding oil refining enterprises). 8 In $ billion
The deal value of the European top 10 deals in 2013 was $ 17.6 billion Bidder target Business area total value 8
ONEXIM Group Uralkali OJSC Potash, mineral fertilizer 3.5
URALCHEM OJSC Uralkali OJSC Potash, mineral fertilizer 2.9
Chengdong Investment Corp. Uralkali OJSC Potash, mineral fertilizer 2.8
Oman Oil Company S.A.O.C. Oxea GmbH Oxo-based chemical products 2.4
Cinven Limited CeramTec GmbH Advanced ceramics 2.0
Advent International Corp. Allnex (formerly coating resins business of Cytec Industries Inc.)
Coating resins 1.2
Rain CII Carbon LLC Rütgers Group Base chemicals and coal tar pitch 1.0
Temasek Holdings Pte Ltd. Evonik Industries AG (4.64 %) Specialty chemicals 0.8
SK Capital Partners LP Archoma (formerly different businesses of Clariant AG)
Colors and specialty chemicals 0.6
Gazprom Pererabotka Gazprom neftekhim Salavat Petrochemicals, mineral fertilizers 0.4
tABLe 04 EUROPEAN TOP DEALS 2013 7
Sources: Thomson One, KPMG Blue numbers are estimated values. Financial investors are italicized.
© 2014 KPMG AG Wirtschaftsprüfungsgesellschaft, a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International.
March 2014 | Chemicals | Deal Capsule | 7
European chemical companies consistently performed better than the Bloomberg European 500 Index average with the spread becoming wider over the last two years.
CAPItAL InDex
Chinese leadership has committed to reforms to encourage local enterprises to choose a new path of industrialization and create national champions to increase China’s self-sufficiency in chemicals and establish an environment that promotes sustainability. This has resulted in increased M&A activity, with the majority of acquisitions carried out by local companies. Chinese buyers are eager to acquire smaller technologically advanced companies, while larger deals are driven by large listed or ‘state owned enterprises’ (SOE). A recently announced large transaction is the $629 million acquisition of Henan Zhongyuan Chemical, an acetic acid and chloroacetic acid specialist by Inner Mongo-lia Yuan Xing Energy, China-based SOE.
CHInA
The number of Russian deals in 2013 fell by 45 % com-pared to 2012. However, the deal value peaked in 2013 at $10.0 billion – $9.2 billion of which is attributable to changes in the shareholding structure of Uralkali, one of the world’s largest potash producers, with a 20 % global market share.
Since the exit from BPC, one of two potash cartel organi-zations in the world, the largest shareholder of Uralkali has been under pressure to divest its holdings. To secure its strategic supply of potash, China acquired a 12.5 % interest in Uralkali via its sovereign funds, CIC. Other acquirers were URALCHEM (19.99 %) and the ONEXIM Group (21.75 %). In January 2014, the Russian Anti-Monopoly Service approved a further purchase of 27.76 % by ONEXIM Group.
RuSSIA – tHe uRALkALI StoRyFIguRe 11 Top 10 chemical deals in Europe
Sources: Thomson One, KPMG
25
20
15
10
5
0
20102009 2011 2012 2013
Dea
l val
ues
($ b
illio
n)
Strategic Investor Financial Investor
9.3
4.6
18.0
2.6
9.66.7
10.911.3
20.6
11.3
17.6
4.9
1.7
0.3
2.1
FIguRe 13 Deals in BRICS countries
Sources: Thomson One, KPMG
300
250
200
150
100
50
0
30
25
20
15
10
5
0
20102009 2011 2012
Num
ber
of d
eals
Val
ue (
$ bi
llion
)
China India
Russia South Africa
Brazil BRICS deal value
161185
215 204
5789
56
96
61
60
3028
26
39 2133
70
74
1977
9
46
2013
165
85
31
22
17
725
FIguRe 12 Development of share prices
Sources: Bloomberg, KPMG
300275250225200175150125100
01.2
00
9
01.2
00
8
01.2
010
01.2
011
01.2
012
01.2
013
01.2
014
01.2
007
Bloomberg European 500 Index BE500 Chemical Index
© 2014 KPMG AG Wirtschaftsprüfungsgesellschaft, a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International.
The information contained herein is of a general nature and is not intended to address the circumstances 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.
© 2014 KPMG AG Wirtschaftsprüfungsgesellschaft, a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International.
Imprint
PublisherKPMG AG Wirtschaftsprüfungsgesellschaft Tersteegenstrasse 19 – 31 40474 Dusseldorf
Contact
Vir Lakshman *Partner, Head of Chemicals & Pharmaceuticals, Germany T +49 211 475-6666 [email protected]
Authors
Rita DuranSenior Manager, Chemicals & Pharmaceuticals, Germany
Sebastian HeinischChemicals & Pharmaceuticals, Germany
www.kpmg.de
* Responsible according to German Law (§ 7 (2) Berliner PresseG)
Basis of data preparation Values and volume used throughout the report are based on completion date as provided by Thomson Reuters’ database Thomson One as of 9 January 2014 and supple-mented by additional independent research. This report includes disclosed and undisclosed values for M&A trans-actions including minority stake purchases, acquisitions of remaining interest, and recapitalizations. It explicitly ex-cludes self-tenders and spinoffs. The published numbers of deals and deal values are based on the analysis of target companies that operate in the following subsectors:
Pharmaceuticals: – Medicinal chemicals and botanical products – Pharmaceutical preparations – In vitro and in vivo diagnostic substances – Biotechnology – biological products, except diagnostic substances
Chemicals: – Clay, kaolin, ceramic and refractory minerals – Chemical and nonmetallic mineral mining, except fuels – Fertilizers and agricultural chemicals – Industrial gases – Specialty chemicals – Plastics and rubber components
All figures in this report are shown in US Dollars ($).
SourcesOnline databases: – Thomson One – Mergermarket – S&P Capital IQ – EvaluatePharma – Bloomberg
Publications: – KPMG’s 2014 M&A Outlook Report – M&A Expected to Rebound in 2014
– KPMG China’s The emergence of local champions, September 2013
– EvaluatePharma, 2013: The year of seven blockbusters, January 22, 2014
– Various companies’ press releases