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TPG, the private equity group, has acquired Par Pharmaceuticals for $1.9bn, marking the latest deal in the increasingly active healthcare sector.
The acquisition is the third large deal since the US Supreme Court upheld the Obama administration’s healthcare law and analysts say that greater clarity about the future of the industry could herald more mergers. Generic drug companies have become especially attractive, as hospitals and insurers are turning to cheaper generic treatments as a way to cut costs.
Par is the fifth-largest US generic drugmaker by sales and makes generic versions of therapies including Paxil and Prozac. Last year Par acquired Anchen Pharmaceuticals, a privately held company, to bolster its pipeline and earlier this year it acquired Edict, an Indian generic drugmaker.
TPG will pay Par shareholders $50 in cash for each share of common stock, offering a 37 per cent premium above the company’s closing share price last Friday. Shares of Par rose 36.7 per cent to $50.01 in afternoon trading on Monday.
“The company is positioned to benefit from the strong macro trends of a greater focus on cost effective healthcare solutions and the increasing demands from an ageing population,” said Todd Sisitsky, a TPG partner.
In the pharmaceutical sector, where value is often based as much on an assessment of chemistry as it is on cold financials, private equity has often been at a disadvantage to industrial buyers.
While there were some large deals at the peak of the credit boom, including the 2007 purchase of Bausch & Lomb by Warburg Pincus for $4.4bn and the $4.1bn buy out of Convatec by Avista and Nordic Capital, deal size and volume has been below that of other sectors.
Private equity has accounted for 5 per cent of pharmaceutical deal value since 2000, according to Dealogic, versus 9 per cent of global mergers and acquisitions generally.
Par Pharmaceutical would be the fifth largest drug sector buyout since 2000, according to Dealogic.
Les Funtleyder, portfolio manager Polliwogg, a hedge fund, said that generic drug companies will benefit from the healthcare reform law because of the focus on cost controls. Meanwhile, generic drugmakers are attractive to private equity because they generate a lot of cash without the risk associated with research and development.
Generic drug companies have been looking for greater scale lately, highlighted by Watson’s acquisition of Actavis for €4.5bn in April and Teva’s $6.8bn acquisition of Cephalon last year. Analysts at Barclays said the TPG acquisition would allow Par to “grow and build out its longer-term pipeline without near-term pressure from investors”.
Par’s board approved the deal unanimously and Patrick LePore, the company’s chief executive, said that TPG’s resources would allow it to invest in its long-term growth.
However, as part of Monday’s agreement, Par has until August 24 to look for better offers from other suitors.
Bank of America Merrill Lynch, Deutsche Bank Securities and Goldman Sachs advised TPG. Par was advised by JPMorgan Securities.