M&A in Life Sciences continued apace, particularly with strong interest for biotech assets in oncology. Consolidation in the paints and coatings sector drives high levels of Chemicals M&A.
HIGHLIGHTS
M&A continues to be brisk with the number of completed deals in both sectors remaining at a high level. One pharmaceutical deal completed in Q1 2017 broke the $10 billion mark. Chemicals saw a deal above $20 billion being announced.
Big pharma players continue to acquire biotechs, particularly in the oncology area. Venture Capital is also increasing investments in biotech assets.
Transactions in Chemicals focused on paints and coatings and plastics.
US and China remain the most active countries. Japanese companies were more active and participated in some large deals.
KPMG’s Deal Thermometer indicates that the environment for M&A activity will remain moderately strong in both pharmaceuticals and chemicals.
DEAL THERMOMETER Q1 2017
Sources: Thomson One, KPMG Analysis
Sources: Thomson One, KPMG Analysis
KPMG’s Deal Thermometer signals the environment for M&A deals in chemicals and pharmaceuticals. It combines the appetite for deals (changes in forward P/E ratios) with the capacity to fund deals (changes in Net Debt/ EBITDA multiples). ‘Hot’ signifies an environment conducive to deal-making.
FIGURE 2: TRENDS IN CHEMICALS M&A
FIGURE 1: TRENDS IN PHARMACEUTICALS M&A
Pharmaceuticals
The value of the top 10 completed deals in Q1 2017 increased 36% compared to the previous year with one transaction surpassing the $10 billion mark. Pharmaceutical firms focused on biotech targets to replenish their pipelines. US and China remain the most active countries.
DEAL FOCUS AREAS
A third of Q1 pharmaceutical transactions are in the biotech sector helping pharma to replenish pipelines. Oncology continues to be the top therapeutic area of interest. In 2017, three of the five biggest growing drugs are likely to be cancer treatments. By 2020, more than 225 medicines are estimated to be introduced with one-third focused on treating cancer. Risk sharing via contingency payments facilitated deals in Q1 2017.
BIOTECH
Takeda Pharmaceutical Company Ltd. completed the $5.2 billion all-cash acquisition of ARIAD Pharmaceuticals Inc., expanding its oncology business by adding two precision medicines – Iclusig and Brigatinib. Iclusig is expected to bolster Takeda’s position in hematology in the US. Brigatinib, a lung cancer drug under investigation, has the potential to generate peak annual sales of more than $1 billion. In 2017, Takeda faces the patent expiry of Velcade, which accounted for 24% of its US sales in 2016.
Sumitomo Dainippon Pharma Co., Ltd. acquired Tolero Pharmaceuticals Inc. for $0.8 billion. Tolero has several preclinical and late-stage assets in oncology and hematology. The deal will help Sumitomo refresh its pipeline as its main pillar, the atypical anti-psychotic LATUDA, loses exclusivity in 2019.
Ipsen S.A. plans to acquire oncology assets from Merrimack Pharmaceuticals Inc. for $1 billion to strengthen its global leadership in specialty oncology. Ipsen is interested in Merrimack’s key product, ONIVYDE, a treatment for metastatic pancreatic cancer, the third leading cause of cancer related deaths.
Celgene Corp. plans to acquire Delinia Inc. for $0.8 billion, a biotech developing novel therapeutics for the treatment of autoimmune diseases and cancer. With the deal, Celgene accesses Delinia’s lead preclinical stage regulatory T cells (Treg) therapy, DEL106. The majority of the purchase price is contingent upon certain milestones being met.
China’s Sanpower Group Co., Ltd. announced the acquisition of Dendreon Pharmaceuticals Inc., an affiliate of Valeant Pharmaceuticals International Inc. for $0.8 billion. Sanpower takes over Dendreon’s first and only commercial product, Provenge, a vaccine for prostate cancer treatment. Dendreon was previously bought by Valeant out of bankruptcy in 2015 for approximately $0.4 million. Valeant will use the proceeds to pay down debt.
FIGURE 4: TOP COUNTRIES IN PHARMACEUTICALS M&A Q1 2017*
* Number of completed deals AS TARGET AS ACQUIRER
US CHINA S. KOREA CANADA FRANCE INDIA
GERMANY SPAIN AUSTRALIA
FIGURE 3: BIGGEST GROWING PRODUCTS BY NEW SALES IN 2017 ($ bn )* Sources:
Sources: Thomson One, KPMG Analysis
Biotech collaborations in immune-oncology
Bristol-Myers Squibb (BMS) announced an expansion of its collaboration with CytomX Therapeutics Inc. The collaboration was initially established in 2014 to focus on the discovery, development and commercialization of novel therapies against multiple immuno-oncology targets using CytomX’s proprietary Probody Platform therapeutics for the treatment of cancer. BMS has contributed approximately $350 million to date and plans to extend this to at least $200 million in upfront payments as well as research funding.
Biotech start-up secures $1 billion VC investment
GRAIL Inc. managed to raise over $0.9 billion through the first close of its Series B financing led by ARCH Venture Partners. Investors include Johnson & Johnson, BMS, Celgene Corp., as well as Amazon.com Inc. In its previous Series A funding, GRAIL had already secured $100 million.
GRAIL aims to detect cancer at an early, still curable stage, through a simplified blood screening procedure. GRAIL combines leading approaches in computer and data sciences with population-scale clinical trials and ultra-broad and ultradeep sequencing. From deep research to driving changes in patient behavior, the opportunities for smart use of data science and analytics in the life sciences industry are almost limitless.
COMPANY INVESTMENT ($ m) ROUND DATE
Moderna Therapeutics
Innovent Biologics
BlueRock Therapeutics
Intarcia Therapeutics
Intarcia Therapeutics
Denali Therapeutics
UNITY Biotechnology
Zal Lab
DalCor Pharmceuticals
Hengrui Therapeutics
451 Series Undisclosed Aug
260 Series D Nov
225 Series A Dec
206 Series Undisclosed Dec
215 Series I Sep
130 Series B Aug
116 Series B Oct
100 Series B Jan
100 Series B Apr
100 Series Undisclosed Jun
Biotech deals outside oncology
By acquiring LifeCell Corp. for $2.9 billion, Allergan PLC enters the field of regenerative medicine, supporting its aesthetic and plastic surgery business. LifeCell’s key assets include dermal matrix products used in breast reconstruction and abdominal wall repair.
Johnson & Johnson (J&J) announced the $30 billion tender offer for the shares of Actelion Ltd., a leader in the field of pulmonary arterial hypertension. This will help to replenish its portfolio following patent expirations.
FINANCIAL INVESTORS
Following a competitive bidding process among PE investors for STADA, a generics and OTC player, the Executive Board and Supervisory Board decided to support Bain Capital LP and Cinven Partners LLP’s offer with a value of € 66 per share, including dividend. This equates to an enterprise value of around € 5.3 billion. STADA achieved an Adjusted EBITDA of around € 0.4 billion on Adjusted Group Sales of approximately € 2.2 billion in 2016.
CAPITAL INDEX
All pharma indices have rebounded after a decline at the beginning of Q1 2017. The Bloomberg Asia Pacific Pharma Index saw the biggest growth by 8.4%, including Takeda with a 6.9% gain. The Bloomberg Europe 500 Pharma Index grew by 6.7%, whereas the S&P 500 Pharma Index increased by 4.9%.
TABLE 1: TOP 10 VENTURE CAPITAL ROUNDS OF 2016 IN LIFE SCIENCES
Sources: Evaluate Ltd., KPMG Analysis
Sources: Bloomberg, KPMG Analysis
FIGURE 5: DEVELOPMENT OF PHARMA SHARE PRICES Q1 2017
TABLE 1: GLOBAL TOP DEALS COMPLETED IN Q1 2017
C hemicals
3:
4: GLOBAL TOP DEALS ANNOUNCED IN Q1 2017, YET TO CLOSE
Chemicals
While the total number of completed deals remained stable, the deal value slightly decreased in Q1 2017 versus Q1 2016. However, landmark announced deals from 2016 are yet to close and one newly announced deal broke the $20 billion mark. US and China remain the most active countries.
DEAL FOCUS AREAS
Chemical players were particularly active in the areas of paints and coatings and plastics.
PAINTS AND COATINGS
Consolidation in paints and coatings continues, following the announced $11.3 billion acquisition of The Valspar Corp. by Sherwin-Williams Co., dating back to March 2016. In Q1 2017, the deadline for its merger agreement has been prolonged to the end of June 2017.
PPG Industries Inc. made a bid for AkzoNobel NV, a global leader in paints, coatings and specialty chemicals. PPG topped its first proposal from 28 February 2017 by €7 to €90 per share (cum dividend), now offering €24.5 billion in total. Akzo has twice rejected the offer. PPG acquired the North American license to Akzo’s Dulux and Sikkens brands through its acquisition of the North American decorative coatings business for $1.1 billion in 2013. PPG expects annual run rate synergies of $750 million in the course of combining the two firms.
Japan-based Nippon Paint Holdings Co., Ltd., the fourth largest paint company worldwide, acquired Dunn-Edwards Corp. for $0.6 billion, enforcing its goal to become a global paint major. So far, Nippon has focused on automotive coatings in the US. The deal now develops its architectural paints business in the region.
Henkel AG & Co. KGaA made a $1.1 billion offer for GCP Applied Technologies Inc.’s packaging technologies business, Darex Packaging Technologies, a leading maker of sealants for beverage, food and aerosol cans. The transaction strengthens Henkel’s leading position in the adhesive technologies business and brings with it a global customer base.
FIGURE 7: TOP COUNTRIES IN CHEMICALS M&A Q1 2017* AS TARGET AS ACQUIRER
Sources: Thomson One, KPMG Analysis
FRANCE CHINA UK RUSSIA INDIA S. KOREA JAPAN
FIGURE 6: PROFORMA COMBINED PAINTS AND COATINGS SALES ASSUMING COMPLETION OF PENDING DEALS
Sources: Company reports, KPMG Analysis * Number of completed deals
PPG Industries Inc./ Akzo Nobel NV
Sherwin-Williams Co./ The Valspar Corp.
PLASTICS
Last year already witnessed keen interest in the plastics industry with Westlake Chemical Corp.’s $3.8 billion acquisition of Axiall Corp. representing the second-largest deal completion in 2016. In Q1 2017, deal activity in plastics added up to more than 15% of completed chemical deals and five transactions in the Top 10 completed list.
CCL Industries Inc., a global top player in specialty label and packaging solutions, led the way by acquiring Innovia Group Ltd. for $0.8 billion. The target is a global leader in specialty biaxially oriented polypropylene (BOPP) films and banknote substrates. It adds complementary competences to CCL’s capabilities in security printing, polymer extrusion and surface engineering.
Berry Plastics Group Inc. acquired AEP Industries Inc. for $0.5 billion, accessing a highly complementary product portfolio. The deal adds more than 15,000 types of multi-purpose and flexible packaging films and 14 manufacturing facilities in USA and Canada. Annual cost synergies of approximately $50 million are expected.
Asahi Glass Co., Ltd. (AGC) completed the $0.3 billion acquisition of Vinythai PCL, strengthening its position in the Southeast Asian caustic soda and polyvinyl chloride (PVC) market, which AGC expects to grow at around 5% per year. The deal is in alignment with AGC’s growth ambitions in the region, adding production facilities in Thailand, following Indonesia and Vietnam.
By acquiring Peninsula Packaging Company LLC for $230 million, Sonoco Products Co. grows its presence in the packaging segment of fresh food products, complementing its previous focus of frozen and shelf-stable foods packaging.
Stone Canyon Industries LLC (SCI) announced the acquisition of Mauser Group NV for $2.3 billion from Clayton Dubilier & Rice LLC. SCI expands its packaging portfolio by obtaining knowledge in intermediate bulk containers, plastic and fibre packaging. Via its subsidiary BWAY Corp., SCI is already a leader in the manufacturing of rigid metal and plastic containers in North America.
FINANCIAL INVESTORS
Momentum has continued from Q4 2016 with several PE houses and financial investors showing interest in the sector. Around 27 percent of completed deals has been carried out by financial investors.
Bridgepoint Advisers Group Ltd. acquired Sapec S.A.’s agrochemicals business for $0.5 billion, adding an Iberian market leader in off-patent crop protection and one of the global leaders in crop nutrition with sales in over 70 countries to its portfolio. Bridgepoint aims to leverage the target’s R&D
and regulatory capabilities to accelerate revenue growth and geographic expansion in the consolidating agrochemicals market.
Asian investors predominantly conducted domestic M&A. MBK Partners Ltd. announced the $1.8 billion acquisition of Daesung Industrial Gases Co., Ltd., enforcing its investment focus on Greater China, Japan and Korea. An investor group including Wuxi Lianchuang Artificial Intelligence Investment Enterprises LP bought a 30% stake of Jiangsu Youli Investment Holding Co., Ltd. for $0.5 billion.
CAPITAL INDEX
In Q1 2017, the Bloomberg Asia Pacific Chem Index outperformed the MSCI World Index and other regional indices with a 9.3% growth. One of the key drivers was LG Chem Ltd. with 16.2% growth.
Sources: Thomson One, KPMG Analysis
FIGURE 8: NUMBER OF COMPLETED CHEMICAL DEALS BY INVESTOR Q1 2017
Sources: Bloomberg, KPMG Analysis
FIGURE 9: DEVELOPMENT OF CHEMICAL SHARE PRICES Q1 2017
BASIS OF DATA PREPARATION
Values and volumes used throughout the report are based on completion date as provided by Thomson Reuters’ database Thomson One as of 31 March 2017, extracted up to and including 3 April 2017, and supplemented by additional independent research. Data available after publication date is incorporated in subsequent editions. This edition presents revised data for the years 2010 to 2015. This report includes disclosed and undisclosed values for M&A transactions including minority stake purchases, acquisitions of remaining interest, and recapitalizations and it explicitly excludes selftenders and spinoffs. The published numbers of deals and deal values are based on the analysis of target companies which operate in the following subsectors:
Chemical and non-metallic mineral mining, except fuels
Fertilizers and agricultural chemicals
Industrial gases
Specialty chemicals
Chemical wholesale
Plastics and rubber components
KPMG’s Deal Thermometer is based on financial data as provided by S&P Capital IQ of public companies in the same sector as noted above with a market capitalization at quarter end of at least a $1 billion. For the pharmaceutical sector, this comprises 203 public companies. For the chemical sector, this comprises 195 public companies.
All figures in this report are shown in US Dollars ($) unless otherwise stated.
Sources
Online databases:
Thomson One (Thomson Reuters)
Mergermarket
S&P Capital IQ
Bloomberg
EvaluatePharma
Publications
Various companies’ press releases
Imprint
Publisher
KPMG AG Wirtschaftsprüfungsgesellschaft Tersteegenstrasse 19 - 23 40474 Düsseldorf Germany
Contact Vir Lakshman * Partner, Deal Advisory Head of Chemicals & Pharmaceuticals, Germany T +49 211 475-6666 vlakshman@kpmg.com
Christian Klingbeil Partner, Deal Advisory – Valuation T +49 89 9282-1284 cklingbeil@kpmg.com
Christian Specht Partner, Deal Advisory – M&A T +49 69 9587-2240 cspecht@kpmg.com
Authors
Rita Duran
Senior Manager, Deal Advisory Chemicals & Pharmaceuticals, KPMG in Germany
Fabian Dingel
Chemicals & Pharmaceuticals, KPMG in Germany
Laura Fritsche
Chemicals & Pharmaceuticals, KPMG in Germany
Contributors
Andy Qiu Partner, KPMG in China
* Responsible according to German Law (§ 7 (2) BerlinerPresseG): Vir Lakshman
