Rebuffed Novartis acquires new company
The #5 pharmaceutical company Novartis raised a large war chest to acquire Aventis earlier this year, but was frustrated by the French government and Sanofi, which eventually made the hostile acquisition. But that money wasn't about to go back to the banks. Swiss-based Novartis, bitten with the acquisitions bug, would find consolation in buying other firms.
The first buy is the generic drug producer Sabex Holding Ltd., a Canadian firm. The Sabex holdings will be taken over by Novartis's Sandoz subsidiary. The deal was for $555 million, a nice piece of change but only a small part of the $50 billion plus it would have cost to buy Aventis. Word is that there will be other deals to follow.
Compared to the prescription drug market, the generic drug market is relatively unconcentrated, with over 150 companies. These lower-cost knockoffs of medicines that have outrun their patents make up a strong and growing market, especially given the desire of both insurers and employee to rein in health costs, and also because of the growing array of effective drugs that have gone off patent. The whole amkrt is expected to reach $100 million within a few years.
Novartis is already #2 in the generic market (second to Israeli generic specialist Teva Pharmaceuticals). Novartis is unusual in combining both an extensive prescription drug holding as well as generic. Sabex is especially strong in the growing market of injectable generic drugs, such as morphine, vitamins, and penicillin. In fact, earlier this year, rival Teva acquired injectable generic maker Sicor for just that reason ($3.4 billion).
In what is becoming a typical pattern, Sabex had been acquired in 2002 by a private equity group specializing in health care turnarounds. This firm, US-based RoundTable Partners who bought out the original owners, helped make the company more sellable, and then waited until the time was right to offload it to a multinational looking to acquire.
Many of the current M&A deals are the purchases of slightly faltering companies. By taking them private, it's easier to restructure the company. The point then is to wait until the timing and price are right. After all, oligopolies often have many timing issues in their acquisition campaigns, as they digest previous acquisitions or wait to unload specific operations or to gather financing. When the stock market goes up, those companies have the cash to pay a premium to buy from the private equity company. And since the company is privately held, the negotiations go much faster as there are no complaining shareholders to hold things up.
