Cinven's M&A Ambitions Over Stada Under Scrutiny, Advent and Others Circle

Having "crunched its numbers" and done initial due diligence, private equity group Cinven has approached troubled Stada Arzneimittel AG with a takeover offer of €56 per share that observers believe aims to create value through industry consolidation, using the German target as a core structure around which future acquisitions would coalesce.

But while Stada seems relatively easy prey after board-level changes at the group last year, the arrival upon the scene of rival suitor Advent International has made Cinven Partners LLP's plan more difficult. Meanwhile, other private equity groups are watching from the sidelines, with media reports pointing to Bain Capital, CVC, and Permira as keen onlookers who could eventually throw their hats in the ring.

Stada Feb. 13 said it was holding talks with Cinven and Advent. The previous day Stada had said Cinven offered it €56 per share, representing nearly a 13% premium over its Friday closing price of €49.70. The offer values Stada at about €3.49 bn. Stada by the afternoon of Feb. 13 had not disclosed details of the Advent bid. Both approaches are non-binding offers.

"Cinven have a reputation for value creation … where an initial investment acts as a platform to which other complementary businesses can be booted on." – Novasecta's Brian McGee

The target, which is based in Bad Vilbel, Germany, said in a statement: "The executive board of Stada Arzneimittel AG has today decided unanimously to start open-minded talks with both potential bidders for the acquisition of up to 100% of the shares in the company." It said both expressions of interest "could offer in different ways attractive opportunities in the interest of the company." No further details were given.

Analysts at Jefferies said the developments "could spark a bidding war for the asset given it is the only 100% free float public pan-European generics business remaining." They added that: "The offer potentially already on the table is already a fair deal to shareholders."

The M&A drama follows a long campaign by activist fund Active Ownership Capital to remove Stada's former chairman and members of its supervisory board and replace them with management more open to takeover. (Also see "Stada Braces For Battle With Activist Investors" - Scrip, 5 Jul, 2016.) Generics make up 58% of sales for the German group, which generated group sales of €2.1bn in 2015 and has some 10,500 employees worldwide, with its main markets being Germany, Russia, UK, Italy and Spain.

Analysts at Natixis said a sale of Stada "seems almost certain now" as its management has few if any other options. "The activist fund Active Ownership Capital, which caused the changes in management and board, has never made a mystery of its willingness to sell the company," they added. But Natixis retained a neutral rating on Stada, on grounds that upside potential for the stock "is limited" despite the prospects of a sale. "We do not change our recommendation, due to limited potential," they said.

Brian McGee, a strategy consultant at Novasecta, the specialist pharmaceutical management consulting firm, noted that Cinven has had prior success in merging, growing - and then selling on - generics groups, notably Cinven's role in creating AMCo through the combination of Amdipharm and Mercury Pharma in 2012, then selling the merged group on three years later at a whopping profit to Nasdaq-listed Concordia Healthcare Corp., while retaining a minority interest. [See Deal]

"Cinven have a reputation for value creation through industry consolidation, where an initial investment acts as a platform to which other complementary businesses can be booted on," McGee told Scrip, adding that another example would be private equity group's acquisition and combination of Labco and Synlab in the summer of 2015 and which created the largest clinical laboratory services company in Europe. (Also see "Cinven plans further Dx consolidation after Labco acquisition" - Medtech Insight, 29 May, 2015.)

Enter Advent

But Advent also has successes in the space, so its arrival makes the Stada M&A competition exciting.

Novasecta's McGee said the German generics specialist would fit nicely with some of the businesses that Advent has invested in recently. "As a result of that know-how, they are well positioned to extract value from the Stada business. Equally partnerships or a merger with existing portfolio companies may make sense."

Advent's website notes the group currently has investments in multiple generics, distribution and specialty pharma companies. "So I imagine that the eventual deal for Stada will now come down to a combination of final price, the quality of the post-investment business plan, and an endorsement from management. It could ultimately go to either party," McGee said.