M&A in Life Sciences for the first nine months has already surpassed 2017 full year levels, driven by the return of blockbuster deals.
vir lakshman | h ead of chemicals & pharmaceuticals, kpm G in Germany
highLightS
Life sciences M&A witnesses a clear upward trend of deal values and number of announced deals compared to the prior year. M&A in the chemical sector remains fairly stable.
growth strategies with a focus on advanced therapies drive M&A in life sciences.
high performance materials and industrial gases dominate the chemicals deal landscape.
US and China remain the most active countries in both sectors.
KPMg’s Deal thermometer indicates that the environment for M&A activity will remain moderately strong in both life sciences and chemicals.
De AL therMOMeter Q1-Q3 2018
kpmG’s deal thermometer signals the environment for m&a deals in chemicals and life sciences. 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.
P/E ratio)
FIG ur E 2: t rends in chemicals m&a
FIG
Sources:
Life Sciences
in Q1-Q3 2018, three announced life sciences deals surpassed the $10 billion mark. the value of the top 10 announced deals in Q1-Q3 2018 increased by more than 20% compared to the previous year. US and China clearly dominate the life sciences M&A landscape as the most active countries. Life sciences players are accelerating growth through advanced therapies.
De AL FOCUS Are AS
Growth strategies focusing on advanced therapies
Advanced therapies (cell and gene therapy) are increasingly used as value drivers in life sciences. the global cell and gene therapy market size is projected to grow up to 2020 at a CAgr of 19%.
the Food and Drug Administration (FDA) granted the first ever approval for a Chimeric Antigen receptor (CAr) t-cell therapy for children and young adults with B-cell precursor acute lymphoblastic leukemia to Novartis Ag‘s Kymriah in August 2017. Kymriah thus became the first gene therapy made available in the US.
gilead Sciences, inc. announced the $11.9 billion acquisition of Kite Pharma, inc. two days prior to the FDA approval of Kymriah.
Approved by the FDA in October 2017, Kite’s CAr t therapy, Yescarta, is the first treatment for refractory aggressive nonhodgkin lymphoma. through the deal, gilead strengthens its position in the cell therapy market and leverages gilead’s expertise in advancing therapies to address unmet patient needs.
Consolidation in advanced therapy continued through 2018, with Celgene Corp. announcing the $9.0 billion acquisition of Juno therapeutics, inc., a biopharmaceutical company, focused on innovative cellular immunotherapies for the treatment of cancer. Celgene targets revenues of at least $19 billion in 2020. FDA approval for Juno’s pivotal stage CAr t-cell therapy JCAr017 in the US is expected in 2019 with potential global peak sales of $3 billion, bolstering Celgene’s lymphoma portfolio.
Sources: Evaluate Ltd., KPMG Analysis
FIG ur E 4: G lo B al cell and G ene therapy market si Z e forecast B et W een 2012 and 2020 ( in $B n .) Sources:
TABLE 1: value creation from advanced therapies (in $Bn.) – top 5 1 Co-development and co-promotion between Celgene and Bluebird bio.
FIG ur E 3: top countries in life sciences m&a Q1-Q3 2018*
u S CHINA S. KOrEA u K CANADA ITALY I NDIA JAPAN F r ANCE AuSTrALIA
* Number of announced deals
Sources: Thomson One, KPMG Analysis
Novartis Ag completed the $8.7 billion acquisition of AveXis, i nc., a clinical-stage gene therapy company in May 2018. Avexis’ lead product candidate, AVXS-101, is a proprietary gene therapy for the treatment of spinal muscular atrophy (SMA) type 1 and type 2. the treatment is expected to be available for patients in 2019 in the U.S.. Novartis gains another gene therapy platform through the transaction, complementing its CA r t platform for cancer treatment.
Financial investors
C iti C Capital h oldings Ltd. started the process for China Biologic Products h oldings, i nc., a leading plasma-based biopharmaceutical company, offering $110 in cash per share in June 2018. C iti C withdrew its preliminary nonbinding proposal in August. China Biologic simultaneously announced the issuance and sale of an aggregate of 5,850,000 ordinary shares, expected to raise gross proceeds of about $590 million. the investors Centurium Capital Management Ltd., C iti C, h illhouse Capital Management, Ltd., and PW Medtech g roup Limited subscribed for and purchased the newly issued ordinary shares at $100.90 per share.
A consortium consisting of PSP i nvestments and StepStone, led by CVC Fund V ii , acquired F i M ei S.p.A., a holding owning 51.8% of the shares of recordati S.p.A., for €3.03 billion. recordati is an international pharmaceutical group, with a broad platform of products and a strong geographical footprint in primary care. recordati’s rare disease business contributed around 17% to the company’s 2017 pharmaceutical sales. With almost €1.3 billion revenues in 2017, the i talian pharmaceutical company generated an e B it DA margin of 35%.
Advent i nternational Corp. announced the acquisition of Zentiva N.V., Sanofi S.A.‘s e uropean generics business, for €1.9 billion. With Zentiva already reaching more than 40 million patients in 25 countries, Advent aims to establish a new independent e uropean generics leader. Zentiva‘s sales volume increased by 23% from 83.6 million units in 2016 to 95.6 million units in 2017. Sanofi’s divesture of e uropean generics is part of the company’s strategy to simplify and reshape the organization. Sanofi has recently completed two transactions in the field of blood disorders, with the $11.6 billion acquisition of Bioverative, i nc., and the $4.8 billion acquisition of Ablynx NV.
CAPitAL iNDe X
i n Q3 2018, the MSC i World Pharma, Biotech, and Life Sciences i ndex outperformed the MSC i World i ndex by more than 4 percentage points, after underperforming during the first half of 2018. Merck & Co., i nc. and Pfizer, i nc. recorded share price increases in excess of 20% in the 9 months to 30 September 2018.
FIG ur E 5: life sciences announced deals B y financial investors
FIG ur E 6: development of l ife s ciences share prices Q1-Q3 2018
Sources: Bloomberg, KPMG Analysis
Life Sciences
the deal value of the global top 10 announced deals in Q1-Q3 2018 was
$ 128.2 billion
GlObAl TOP DeAlS ANNCOUNCeD
FIG
Chemicals
the number of chemicals deals was relatively stable in Q1-Q3 2018, whereas the total deal value declined by approximately 16%. Chemicals players are focusing increasingly on engineering and high performance materials. China remains the most active country.
iNDUStriAL gASeS
the recently approved merger of Linde Ag and Praxair, i nc. spawned a number of anti-trust driven divestments.
taiyo Nippon Sanso Corp., Japan’s largest industrial gas supplier, announced the €5 billion acquisition of the majority of Praxair, i nc.’s e uropean businesses. the assets to be sold include businesses in twelve e U countries, which generated sales of approximately €1.3 billion in 2017 and had 2,500 employees.
Messer g roup g mb h teamed up with CVC Capital Partners Fund V ii to acquire the majority of Linde Ag ’s gases
business in North America and certain businesses in South America for $3.3 billion through their joint venture M g i ndustries.
Messer plans to contribute its Western e uropean companies into M g i ndustries. With the transaction, Messer returns to the North and South American markets after the g erman industrial gases manufacturer sold its North American holdings to Air Liquide S.A. in 2004. the business to be acquired generated annual revenues of $1.7 billion and an e B it DA exceeding $360 million in 2017.
Sources: Thomson One, KPMG Analysis
CHINA
FIG
Sources:
FUrther CONSOLiDAtiON iN AgriCULtUre
i ndian UPL Ltd. announced the $4.2 billion acquisition of Arysta LifeSciences i nc., a global provider of crop solutions, specialized in the development, formulation, registration, marketing and distribution of differentiated crop protection chemicals, creating a major force in the industry. Arysta reported 2017 revenues of approximately $1.9 billion. the transaction enables synergies across geographies, crops and products, yielding approximately $5 billion in combined sales. UPL expects annual run-rate synergies exceeding $200 million.
eNgiNeeriNg AND high PerFOrMANCe MAteriALS
DOMiNAte De AL LANDSCAPe
h igh-performance polymer deals account for two of the top 10 announced chemical deals.
LyondellBasell i ndustries N.V. completed the $2.3 billion acquisition of an international supplier of highperformance plastic compounds, composites, and resins, A. Schulman, i nc.. With approximately 5,200 employees and 54 manufacturing facilities globally, A. Schulman generated net sales of around $2.5 billion in the year ended 31 August 2017. through the acquisition, LyondellBasell more than doubles the company’s compound business and extends LyondellBasell’s reach into several highmargin end markets. A stand-alone reporting segment, Advanced Polymer Solutions, will include the A. Schulmann assets, combined with LyondellBasell’s polypropylene compounding assets, catalloy thermoplastic resins, and polybutene-1 resins.
toray i ndustries, i nc. completed the purchase of the entire share of tenCate Advanced Composites h olding B.V., a subsidiary of Koninklijke ten Cate B.V. the purchase price of €930 million represents an e B it DA multiple of 19.8x. the transaction helps toray to expand it high-performance thermoplastic and thermoset composites assortment.
Saudi Aramco acquires remaining stake in Synthetic Rubber JV
Lanxess Ag announced the sale of its 50 percent stake in A r LANX e O, a joint venture initially founded in 2016, to the joint venture partner Saudi Arabian Oil Company (Saudi Aramco). through the transaction, Lanxess expects to receive €1.4 billion after deducting debt and other financial liabilities. A r LANX e O is a leading company in the field of synthetic high-performance rubber for end markets such
as the automotive and tire industries, the construction industry, and the oil and gas industries. Approximately 3,800 employees working for A r LANX e O at twenty production sites in nine countries generated sales of around €3.2 billion in 2017.
Source: Statista
CAPitAL iNDe X
the Bloomberg World Chemicals i ndex held pace with the MSC i World i ndex during h Y1 2018, but underperformed by approximately 8 percentage points in Q3 2018.
Sources: Bloomberg, KPMG Analysis
FIG ur E 15: development of c hemical share prices Q1-Q3 2018
FIG ur E 14: s ynthetic ru BB er production W orld W ide from 2008 to 2017 (in metric me G atons)
BASiS OF DAtA PrePAr AtiON
Values and volumes used throughout the report are based on announcement date as provided by thomson reuters’ database thomson One as of 30 September 2018, extracted up to and including 4 October 2018, and supplemented by additional independent research. Data available after publication date is incorporated in subsequent editions. this edition presents revised data for the years 2012 to 2016. 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 self-tenders and spinoffs. the published numbers of deals and deal values are based on the analysis of target companies which operate in the following subsectors:
Life Sciences
Medicinal chemicals & botanical products
Pharmaceutical preparations in vitro and in vivo diagnostic substances
Chemical and non-metallic mineral mining, except fuels
Fertilizers and agricultural chemicals
i ndustrial 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 $1 billion. For the life sciences sector, this comprises 314 public companies. For the chemical sector, this comprises 192 public companies.
All figures in this report are shown in US Dollars ($) unless otherwise stated.
Sources
Online databases:
thomson One (thomson reuters)
Mergermarket
S&P Capital iQ
Bloomberg evaluate Ltd.
Various companies’ press releases
Imprint
Publisher
KPM g Ag Wirtschaftsprüfungsgesellschaft tersteegenstrasse 19 - 23 40474 Düsseldorf g ermany
Contact Vir Lakshman * Partner, Deal Advisory h ead of Chemicals & Pharmaceuticals, g ermany 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, KPM g in g ermany Laura Fritsche Chemicals & Pharmaceuticals, KPM g in g ermany
