Arsenal Continues Run In Pharmaceutical Supplies

Target: Priority Solutions International

Price: Undisclosed

Seller: Arsenal Capital Partners

Buyer: Thermo Fisher Scientific Inc.

Financial Advisor: Seller: BB&T Capital Markets

Return: 3.5x

Arsenal Capital Partners notched its second lucrative exit in the last year from the pharmaceutical-supply sector, closing the sale of Priority Solutions International to a strategic bidder earlier this month.

Thermo Fisher Scientific Inc. agreed to pay an undisclosed sum for Priority Solutions, a company that manages the delivery of drugs and other medical products. It generated revenue of $95 million in 2006.

The sale delivered a 3.5x return on invested equity—and an IRR approaching 50 percent—for New York-based Arsenal Capital, said James Marden, a managing director. In August 2006, Arsenal Capital sold Scientific Protein Laboratories, a maker and distributor of pharmaceutical ingredients, to American Capital Strategies, netting a 4.1x return on the deal. “It’s an attractive sector, and we still feel like there are interesting niches for investment,” Marden said.

The firm retains investments in other areas of the pharmaceutical supply and medical logistics markets, including iMDs, which provides outsourcing services to medical device companies, and Vertellus Specialties, which makes chemicals for the food and drug industries.

Arsenal Capital first bought Priority Air Express, based in Swedesboro, N.J., in 2004 and a year later yoked the company to its primary competitor, Distribution Solutions International, based in Traverse City, Mich. The union of the two companies provided greater scale, a broader customer base, and a bigger menu of services to offer them, Marden said. During its hold period, Arsenal Capital also upgraded a distribution facility and added to the management team.

“It created a better, more diversified business,” Marden said of the add-on acquisition. “We felt like we have been able to do some nice things with the company.”

Despite the summer’s credit swoon, both financial and strategic players lined up to bid on Priority Solutions in an auction run by BB&T Capital Markets. Thermo Fisher (NYSE: TMO), a maker of lab supplies and equipment, ended up proving to be “a better buyer” than LBO firms, Marden said, and providing “the return we were looking for.”—J.H.